Itaú Unibanco Holding S.A.
Management Discussion & Analysis and Complete Financial Statements
3rd Quarter 2009 Itaú Unibanco
Contents
Management Discussion and Analysis 1
Complete Financial Statements 41 ITAÚ UNIBANCO HOLDING S.A.
INFORMATION ON THE RESULTS FROM JANUARY TO SEPTEMBER 2009
We present below the main results of Itaú Unibanco Holding S.A. (Itaú Unibanco) for the period from January to September 2009. Considering the merger that created Itaú Unibanco at the end of 2008 and aiming at providing a better understanding of the changes in assets, liabilities and results of the new institution, for the effect of comparability, the data related to the period from January to September 2008 takes into consideration the addition of Itaú and Unibanco figures.
1. Net income for the period from January to September 2009 totaled R$ 6.9 billion, with annualized return of 19.8% on average equity (25.5% for the period from January to September 2008). Recurring net income was R$ 7.7 billion, with annualized return of 22.2%. Consolidated stockholders' equity totaled R$ 48.9 billion at the end of September 2009. Basel ratio stood at 16.3% at the end of September, based on economic-financial consolidated.
2. Itaú Unibanco’s preferred shares rose 48.6%, as compared to the quotation of December 31, 2008. The market value at Stock Exchanges was R$ 161.0 billion at the end of September, which ranked Itaú Unibanco 11th in the global bank ranking.
3. In the period from January to September 2009, Itaú Unibanco paid or provided for taxes and contributions in the amount of R$ 11.5 billion. The Bank also withheld and passed on taxes, which were directly levied on financial operations, in the amount of R$ 5.7 billion.
4. Consolidated assets totaled R$ 612.4 billion at September 30, 2009 the highest among the private financial groups of Latin America. The loan portfolio, including endorsements and sureties, totaled R$ 268.7 billion, an increase of 5.5% as compared to September 30, 2008. In Brazil, non-mandatory loans to the individuals segment reached R$ 98.4 billion, with a growth of 6.3%. The large company segment reached R$ 90.3 billion, and the very small, small and middle-market company segment reached R$ 56.7 billion, with an increase of 18.1%.
5. Total free, raised and managed own assets amounted to R$ 832.6 billion, an increase of 8.7% as compared to September 30, 2008. Technical provisions for insurance, pension plan and capitalization totaled R$ 50.0 billion at the end of September 2009.
6. In the investment banking area, Itaú BBA took part in operations of debentures and promissory notes that totaled R$ 13.3 billion, and of securitization that totaled R$ 780 million in the period from January to September 2009. These operations assured the leadership in the Anbid ranking regarding the distribution of fixed income in the period from January to September 2009. In capital markets, it coordinated public offerings that totaled R$ 5.3 billion.
7. Itaú Unibanco employed approximately 103 thousand people at the end of September 2009. The employees' fixed compensation plus charges and benefits totaled R$ 6.3 billion in the period from January to September 2009. In addition, approximately R$ 79 million were invested in education, training and development programs. At present, Itaú Unibanco is in the list comprising the best companies to work of the Great Place to Work Institute (partnership with the Época Magazine) and of FIA/USP (partnership with the Exame/Você S/A magazine).
8. Itaú Unibanco and Porto Seguro entered on August 23, 2009 into an alliance aimed at the unification of residence and automobile insurance operations for the exclusive offer and distribution of products of these segments to the customers of the Itaú Unibanco branch network in Brazil and Uruguay. The completion of the alliance between Itaú Unibanco and Porto Seguro depends on the approval at the stockholders’ meeting and of the Brazilian Antitrust System (SBDC). On October 16, SUSEP granted prior authorization for the corporate acts related to this alliance.
9. Itaú Unibanco and Tempo Participações signed on September 24, 2009 a Memorandum of Understanding aimed at transferring 100% of Unibanco Saúde Seguradora’s capital to Tempo. In the coming 90 days, Tempo and Itaú Seguros will sign a definitive documentation detailing the rules outlined in the Memorandum of Understanding. The conclusion of this agreement will depend on the approval of the bodies in charge, including the ANS (Brazilian Health Agency – the health market regulator) and SBDC.
10. Companhia Brasileira de Distribuição (CBD) and Itaú Unibanco concluded on August 28, 2009 the negotiation related to the company Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento (FIC). The agreement which created FIC was amended, in order to exclude the obligation of exclusivity of Itaú Unibanco. CBD and Itaú Unibanco also agreed to extend the exclusivity granted by CBD to FIC to an additional term of five years for the offer of financial products and services.
11. For the tenth consecutive year, Itaú Unibanco was selected to make up the portfolio of the Dow Jones Sustainability World Index (DJSI), in its 2009/2010 review, comprising 317 companies of 26 countries. It thus continues to be the only Latin America institution to be included in this index since it was created in 1999. Of the seven Brazilian companies which were selected, three are of the Group: Itaúsa, Itaú Unibanco, and Redecard. In the third quarter, Itaú Unibanco was considered the leader of its sector in Brazil and Latin America, according to the evaluation of The Banker magazine; it received from the Euromoney magazine the award of best bank in Brazil for the 11th time; and it was considered by Guia Exame de Investimentos Pessoais the best bank in investment fund management. Itaú Private Bank was recognized by the Private Banker International (PBI) magazine as the best bank in Latin America.
12. In the period from January to September 2009, social and cultural investments of Itaú Unibanco totaled R$ 129 million. The Programa de Voluntários (volunteers program) launched the Sábado Voluntário (volunteering Saturday) event. Semana Voluntária (volunteering week) encouraged the volunteer service among employees in the administrative centers. Instituto Unibanco mobilized 35 thousand students, parents and teachers to carry out improvements in 42 schools in São Paulo. In addition to the 48 schools already benefited in Belo Horizonte, Porto Alegre, and São Paulo, the amount of R$ 5.4 million was provided to improve the quality of education in 45 new public schools, thus benefiting 50 thousand students. Instituto Itaú Cultural carried out 314 events in Brazil and 101 in a number of countries between January and September 2009.
The complete financial statements and the Management’s Discussion & Analysis Report of Itaú Unibanco, which present further details on the results for the period, are available on the Itaú Unibanco website (www.itau- unibanco.com/ir).
São Paulo, October 30, 2009.
Pedro Moreira Salles Chairman of the Board of Directors
Itaú Unibanco Holding S.A.
Management Discussion & Analysis
3rd Quarter 2009 Itaú Unibanco
Contents
Executive Summary 03
Analysis of Net Income 10
Managerial Financial Margin 11
Results from Loan and Lease Losses 13
Banking Service Fees and Banking Charge Revenues 15
Non-interest Expenses 16
Income Tax and Social Contribution 17
Balance Sheet 18
Balance Sheet by Currency 22
Value at Risk 23
Ownership Structure 24
Pro Forma Financial Statements by Segment 26
Commercial Bank 30
Itaú BBA 31
Consumer Credit 31
Insurance, Pension Plans and Capitalization 32
Activities Abroad 36
Report of Independent Accountants 39
Complete Financial Statements 41
It should be noted that the information included in this report relating to prior periods has been reclassified for comparison purposes.
For comparison purposes, we have adjusted the accounting statements (statements of income and balance sheets) for periods before the first quarter of 2009, to include the full consolidation of Redecard.
The tables in this report show the figures in millions. Variations, however, are calculated in units.
Future expectations arising from the reading of this analysis should take into consideration the risks and uncertainties that involve any activities and that are outside the control of the companies of the conglomerate (political and economic changes, volatility in interest and foreign exchange rates, technological changes, inflation, financial disintermediation, competitive pressures on products and prices, and changes in tax legislation).
2 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Executive Summary Third Quarter of 2009
The table below shows selected information and performance indicators of Itaú Unibanco Holding S.A.. The balance sheet information at September 30th, 2008 and results of the third quarter of 2008 and of the first nine months of 2008 correspond to the sums of the balances and results obtained by Itaú and by Unibanco at that date and for those periods.
Highlights - Managerial Criteria R$ million (except where indicated) Statements of Income 3rd Q/09 2nd Q/09 3rd Q/08 jan-sep/09 jan-sep/08 Net Income – Parent Company 2,268 2,571 2,551 6,854 8,133 Recurring Net Income 2,687 2,429 2,677 7,677 8,232 Managerial Financial Margin (1) 10,835 10,561 9,225 31,966 26,356 Shares (R$) Consolidated Net Income per share (2) (3) 0.50 0.57 0.57 1.52 1.80 Consolidated Recurring Net Income per share (2) (3) 0.60 0.54 0.59 1.70 1.83 Number of Outstanding Shares – in thousands (2) (3) 4,523,759 4,518,347 4,506,297 4,523,759 4,506,297 Book Value per share 10.80 10.46 9.88 10.80 9.88 Dividends/JCP net of taxes (4) (R$ Million) 806 729 794 2,303 2,511 Dividends/JCP net of taxes (4) per share 0.20 0.16 0.18 0.53 0.56 Market Capitalization (5) (R$ Million) 161,046 128,034 113,738 161,046 113,738 Market Capitalization (5) (US$ Million) 90,572 65,604 59,415 90,572 59,415 Performance Ratios (%) Return on Average Equity – Annualized (6) 18.9% 22.3% 23.3% 19.8% 25.5% Recurring Return on Average Equity – Annualized (6) 22.4% 21.1% 24.5% 22.2% 25.9% Return on Average Assets – Annualized (6) 1.5% 1.7% 1.9% 1.5% 2.1% Recurring Return on Average Assets – Annualized (6) 1.8% 1.6% 2.0% 1.7% 2.2% Solvency Ratio (BIS Ratio) 16.3% 16.5% 14.7% 16.3% 14.7% Annualized Net Interest Margin (7) 10.7% 10.1% 10.2% 10.9% 10.8% Nonperforming Loans Index (NPL over 60 days) 7.0% 6.7% 4.6% 7.0% 4.6% Nonperforming Loans Index (NPL over 90 days) 5.9% 5.4% 3.8% 5.9% 3.8% Coverage Ratio (Provision for Loan Losses/Nonperforming Loans over 60 days) 145% 146% 138% 145% 138% Coverage Ratio (Provision for Loan Losses/Nonperforming Loans over 90 days) 172% 182% 175% 172% 175% Efficiency Ratio (ER) (8) 41.1% 42.7% 46.3% 42.0% 44.5%
Balance Sheet Sep 30,09 Jun 30,09 Sep 30,08 Total Assets 612,399 596,387 577,974 Credit Operations (A) 237,099 234,490 224,059 Sureties, Endorsements and Guarantees 31,594 268,693 31,476 265,966 30,707 254,766 Deposits + Debentures + Borrowings and Onlending and Securities (9) (B) 264,941 268,189 241,065 Credit Operations / Funding (A/B) 89.5% 87.4% 92.9% Stockholders' Equity of Parent Company 48,862 47,269 44,510 Relevant Data Assets Under Management (AUM) 310,346 304,609 265,042 Employees (Individuals) 102,754 103,790 108,666 Branches (Units) 3,951 3,939 3,827 CSBs (Units) 960 978 997 Automated Teller Machines (Units) 30,374 30,659 30,984
(1) Described on page 11. (2) For 2008, we considered the number of shares at the time of the association. (3) The number of shares outstanding was adjusted to reflect the 10% share bonus that occurred on August 28, 2009. (4) JCP– interest on own capital. Amounts paid/provisioned (Note 16 - b II to the Financial Statements). (5) Calculated based on the average quotation of non-voting shares on the last trading day in the period. (6) Annualized Return was calculated by dividing Net Income of the parent company by the Average Stockholders’ Equity of the parent company/Average Assets. The quotient of this division was multiplied by the number of periods of the year to derive the annualized index. (7) Does not include Treasury Financial Margin. (8) ER= Non-interest Expenses / (Managerial Financial Margin + Banking Fees and Charge Revenues + Result from Operations of Insurance, Pension Plans and Capitalization before Retained Claims + Other Operating Income + Tax Expenses for ISS, PIS and Cofins). (9) Net of compulsory deposits as described on page 20.
3 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Executive Summary Third Quarter of 2009
Managerial Statement of Income During the third quarter of 2009, the following non-recurring events impacted Itaú Unibanco’s consolidated net income:
R$ million 3rd Q/09 2nd Q/09 jan-sep/09 jan-sep/08 Recurring Net Income 2,687 2,429 7,677 8,232 Economic plans provision (56) (54) (166) (176) Disposal of investments - 212 212 96 Goodwill amortization - (15) (506) (20) Itaú Unibanco Association with CBD (363) - (363) - Total non-recurring effects (419) 142 (823) (100) Net Income 2,268 2,571 6,854 8,133 Note: The impacts of the non-recurring events described above are net of tax effects. (Further details are presented in Note 22-l of the Financial Statements). The result of the first nine months of 2008 corresponds to the sum of the results obtained by Itaú and by Unibanco.
Managerial Statement of Income The Management Discussion and Analysis Report is based sheets and statements of income) have been adjusted to on the Managerial Statement of Income, which arises from reflect the full consolidation of Redecard. reclassifications made in the accounting statement of In the third quarter of 2009, the real appreciated by 8.9% income. Basically, the tax effects of hedges of investments against the U.S. dollar, while in the second quarter the abroad, originally included in the tax expense (PIS and appreciation was equal to 15.7%. The Brazilian currency Cofins) and income tax and social contribution of net appreciated by 5.1% against the euro, compared to 11.0% income lines in the accounting statement of income, were in the second quarter of 2009. reclassified to Financial Margin. Tax benefits from As a result of the exchange variation observed in the third sovereign securities issued by foreign governments were quarter of 2009, combined with the exchange risk also reclassified. management policy of investments abroad, the tax effects In the third quarter of 2009, we started to consider the of the hedge of Itaú Unibanco investments abroad and financial margin obtained from financial institutions as one sovereign securities issued by foreign governments of the components of the financial margin with the represented a R$1,032 million expense in the period. market, since the Treasury structure is responsible for such management. Hence, we have reclassified the information of the second quarter of 2009 in order to guarantee Macroeconomic Indices comparability. Sep 30,09 Jun 30,09 Sep 30,08 It should be noted that our interest in Redecard increased Macroeconomic Indices EMBI Brazil Risk 234 284 303 and, accordingly, we obtained control over that Company. CDI (In the Quarter) 2.3% 2.4% 3.2% As a result, the financial statements for 2008 (balance Dollar Exchange Rate (Var. in the Quarter) -8.9% -15.7% 20.3% Dollar Exchange Rate (Quotation in R$) 1.7781 1.9516 1.9143 IGP-M (In the Quarter) -0.4% -0.3% 1.5% Savings Rate (In The Quarter) 1.6% 1.7% 2.1%
4 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Executive Summary Third Quarter of 2009 Managerial Statement of Income Our strategy of management of the exchange risk of the capital invested abroad has the objective of not permitting impacts on the result from the exchange variation. To reach that goal, the exchange risk is neutralized and the investments are remunerated in Reais by using derivative financial instruments. Our hedge strategy further considers all tax effects. The tax benefit obtained with sovereign securities issued by foreign governments is also part of this adjustment. R$ million Itaú Unibanco Pro Forma rd Non-recurring Tax Effect of Hedge 3 Quarter/09 Accounting Managerial Effects and Sovereign Bonds
Managerial Financial Margin 11,868 - (1,032) 10,835 Financial Margin with Customers 9,380 - - 9,380 Financial Margin with Market 2,488 - (1,032) 1,456 Result from Loan Losses (3,727) - - (3,727) Provision for Loan and Lease Losses (4,296) - - (4,296) Recovery of Credits Written Off as Losses 569 - - 569 Net Result from Financial Operations 8,140 - (1,032) 7,108 Other Operating Income/(Expenses) (3,300) 634 125 (2,540) Banking Fees and Charge Revenues 3,853 - - 3,853 Result from Op. of Insurance, Pension Plans and Capitalization 600 - - 600 Non-interest Expenses (6,940) 634 - (6,306) Tax Expenses for ISS, PIS and Cofins (912) - 125 (787) Equity in the Earnings of Associated Companies 43 - - 43 Other Operating Income 57 - - 57 Operating Income 4,840 634 (907) 4,568 Non-operating Income 36 - - 36 Income before Tax and Profit Sharing 4,877 634 (907) 4,604 Income Tax and Social Contribution (1,918) (216) 907 (1,227) Profit Sharing (471) - - (471) Minority Interests (220) - - (220) Net Income 2,268 419 - 2,687 R$ million Itaú Unibanco Pro Forma nd Non-recurring Tax Effect of Hedge 2 Quarter/09 Accounting Managerial Effects and Sovereign Bonds
Managerial Financial Margin 12,710 - (2,149) 10,561 Financial Margin with Customers 9,212 - - 9,212 Financial Margin with Market 3,498 - (2,149) 1,349 Result from Loan Losses (3,790) - - (3,790) Provision for Loan and Lease Losses (4,252) - - (4,252) Recovery of Credits Written Off as Losses 461 - - 461 Net Result from Financial Operations 8,920 - (2,149) 6,771 Other Operating Income/(Expenses) (3,000) 113 248 (2,638) Banking Fees and Charge Revenues 3,617 - - 3,617 Result from Op. of Insurance, Pension Plans and Capitalization 620 - - 620 Non-interest Expenses (6,502) 110 - (6,392) Tax Expenses for ISS, PIS and Cofins (1,039) 3 248 (788) Equity in the Earnings of Associated Companies 79 - - 79 Other Operating Income 225 - - 225 Operating Income 5,920 113 (1,901) 4,132 Non-operating Income 377 (337) - 40 Income before Tax and Profit Sharing 6,297 (224) (1,901) 4,172 Income Tax and Social Contribution (3,162) 81 1,901 (1,179) Profit Sharing (361) - - (361) Minority Interests (203) - - (203) Net Income 2,571 (142) - 2,429
5 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Executive Summary Third Quarter of 2009
Net Income and Annualized Return on Average Equity Itaú Unibanco’s recurring consolidated net income amounted to R$ 2,687 million in the third quarter of 2009, corresponding to a 10.6% increase compared to recurring net income in the prior quarter. At September 30th, 2,836 2,719 2,677 2,562 2,687 2,504 2,339 2,429 2009, the parent Company stockholders’ equity totaled R$ 48,862 million, leading to an annualized recurring return on average equity of 22.4%, a 130 26.4 26.8 24.9 24.5 21.2 23.1 21.1 22.4 basis points growth when compared to the prior period.
4th 1st 2nd 3rd 4th 1st 2nd 3rd Q/07 Q/08 Q/08 Q/08 Q/08 Q/09 Q/09 Q/09
Recurring Net Income (R$ million) Annualized Recurring ROE (%)
Loan Portfolio (*) Variation (%) R$ billion Sep/09- Sep/09- Sep/09- Sep 30,09 Jun 30,09 Dec 31,08 Sep 30,08 Jun/09 Dec/08 R$Sep/08 million Individuals 98,383 96,543 93,172 92,545 1.9% 5.6% 6.3% Sep/09 37.3 231.4 268.7 Credit Card 25,215 24,307 23,638 20,854 3.7% 6.7% 20.9%
Jun/09 42.5 223.4 266.0 Personal Loans 22,498 22,702 21,681 24,620 -0.9% 3.8% -8.6% Vehicles 50,670 49,535 47,853 47,070 2.3% 5.9% 7.6% Mar/09 52.3 220.4 272.7 Businesses 147,008 145,976 153,466 138,372 0.7% -4.2% 6.2% Dec/08 54.3 217.7 271.9 Corporate 90,299 91,664 102,826 90,350 -1.5% -12.2% -0.1% Sep/08 48.8 205.9 254.8 Micro, Small and Middle Market 56,709 54,312 50,640 48,022 4.4% 12.0% 18.1%
Jun/08 41.1 190.0 231.1 Directed Loans 12,761 11,784 11,898 11,823 8.3% 7.3% 7.9% Rural Loans 4,929 4,674 5,654 6,082 5.5% -12.8% -19.0% Mar/08 41.0 177.0 218.0 Mortgage Loans 7,832 7,110 6,244 5,741 10.2% 25.4% 36.4% Dec/07 36.3 166.7 202.9 Argentina/Chile/ Uruguay/Paraguay 10,541 11,663 13,402 12,026 -9.6% -21.3% -12.4% Total 268,693 265,966 271,938 254,766 1.0% -1.2% 5.5% Foreign Currency Local Currency Total Retail (**) 167,853 162,639 155,710 152,390 3.2% 7.8% 10.1% (*) Includes endorsements and sureties. (**) Includes Credit Card, Personal Loans, Vehicles, Micro, Small and Middle Market, Rural Loans and Mortgage Loans.
During the third quarter of 2009, the loan and financing portfolio, including sureties and endorsements, reached R$ 268,693 million, a 1.0% increase from the end of June 2009. The appreciation of the real against foreign currencies led the balance of credit transactions denominated in, or linked to, such currencies to decrease when compared to the prior quarter. The exchange rate impact becomes evident when we observe the 3.2% growth quarter-on-quarter of the retail bank total loan portfolio which, in its majority, is not affected by fluctuations in the value of the currency. The performance of credit card and vehicle transactions is to be highlighted in the individual customer portfolio. As to the Corporate portfolio, the highlight was the increase in transactions with very small, small and mid-sized companies. Once again, the exchange variation significantly affected transactions with large companies, driving a 1.5% decrease in this balance quarter-on-quarter. Similarly, loans and financing granted by our units abroad were also impacted by the appreciation of the real, declining by 9.6% from the previous period.
Managerial Financial Margin R$ million The managerial financial margin reached R$ 10,835 million in the third 10,570 10,561 10,835 quarter of 2009, growing by 2.6% from the prior quarter. The increased 9,915 9,225 1,329 1,349 1,456 balance of the loan and financing portfolios – particularly the increase of 8,812 499 8,319 544 7,958 627 the portfolio of micro, small and medium enterprises – positively 496 536 impacted the financial margin on customer transactions. During the third quarter of 2009, the financial margin on market transactions
9,416 9,241 9,212 9,380 amounted to R$ 1,456 million, a 7.9% increase compared to the prior 8,186 8,681 7,422 7,822 period, primarily influenced by the strategies pursued for transactions involving exchange rate parities.
4th Q/07 1st Q/08 2nd Q/08 3rd Q/08 4th Q/08 1st Q/09 2nd Q/09 3rd Q/09
Customer Financial Margin Market Financial Margin
6 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Executive Summary NPL Ratio (*) (%) NPL Ratio over 90 days (%) NPL Ratio 61-90 days (%) 10.0% 8.1% 8.1% 9.8% 9.7% 7.9% 8.3% 8.3% 6.8% 6.9% 2.0% 2.0% 8.1% 7.9% 6.6% 6.5% 6.4% 1.7% 8.1% 1.6% 1.7% 6.7% 5.4% 5.9% 1.5% 1.5% 1.5% 7.0% 1.3% 5.6% 4.2% 4.4% 5.1% 4.8% 4.9% 4.8% 4.8% 3.9% 4.0% 3.8% 3.9% 4.1% 1.2% 1.1% 4.6% 1.0% 1.0% 3.9% 3.1% 0.8% 0.8% 0.9% 0.8% 0.7% 2.5% 1.6% 1.9% 0.6% 1.9% 1.3% 1.3% 1.3% 1.5% 1.6% 1.5% 1.7% 1.2% 0.3% 0.3% 0.2% 0.3% 0.2%
Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/09 Jun/09 Sep/09 Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/09 Jun/09 Sep/09 Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/09 Jun/09 Sep/09 Individuals Total Corporate (*) Nonperforming Loans: Loan transactions overdue more than 60 days. In the third quarter of 2009, the expense for doubtful loans totaled R$ 4,669 million, representing a 7.1% decline from the second quarter of the same year. In the period, we had a reversal of R$ 373 million of previous additional provisions, after credit models were used to determine the level of additional provisions necessary. Accordingly, the recurring provision for doubtful loans, net, added up to R$ 4,296 million, or a 1.1% increase when compared to the second quarter of 2009. The nonperforming ratio of the loan portfolio reveals distinct scenarios in the individual and corporate portfolios. For the former, we have noted stability in the nonperforming ratio for transactions more than 90 days overdue. Nevertheless, for transactions more than 60 days overdue, we have observed an improvement compared to the prior quarter, which may suggest that the worst moment of the current credit cycle is behind us. In the latter, on the other hand, the impacts of the international economic-financial crisis are still affecting the quality of our assets. Banking fees and charge revenues R$ million 3rd Q/09 3,853
2nd Q/09 3,617 During the third quarter of 2009, banking service fees, including banking
1st Q/09 3,526 charges, totaled R$ 3,853 million, corresponding to a 6.5% increase from the
4th Q/08 4,063 prior period. Asset management revenues were positively impacted by the
3rd Q/08 3,825 increased volume of assets under management and higher number of business days in the period. The increase of credit card income was due to higher 2nd Q/08 3,846 transaction amounts. Finally, revenues also increased as a result of the 1st Q/08 3,708 expanded activity of the investment banking area. On September 30th, 2009, 4th Q/07 3,940 Itaú Unibanco had 16,515 thousand individual customers and 1,217 thousand Non-interest Expenses R$ million corporate customers. 7,015 6,462 6,357 6,392 6,306 6,012 5,805 5,506
In the third quarter of 2009, non-interest expenses added up to R$ 6,306 million, a 1.3% decline from the prior period. Such decrease is primarily attributable to synergy gains arising from the integration of Itaú’s and 4th Q/07 1st Q/08 2nd Q/08 3rd Q/08 4th Q/08 1st Q/09 2nd Q/09 3rd Q/09 Unibanco’s operations, a process that was boosted upon the start of the Efficiency Ratio (%) (*) migration of Unibanco’s branches to Itaú’s operational platform. 3rd Q/09 41.1% Accordingly, the efficiency ratio reached 41.1% in the third quarter of 2009, 2nd Q/09 42.7% an improvement compared to 42.7% in the prior quarter. 1st Q/09 42.3% 4th Q/08 47.7% 3rd Q/08 46.3% 2nd Q/08 43.6% 1st Q/08 43.4% 4th Q/07 48.3%
(*) The criteria for calculating the efficiency ratio are detailed on page 17. Unrealized Profit/(Loss) R$ million 12,537 During the third quarter of 2009, unrealized net income/(loss) in the income 11,642 11,363 488 10,427 10,417 statement totaled R$10,417 million, declining by 0.1% compared to June 222 152 8,792 9,141 30th, 2009. The decrease quarter-on-quarter is mainly related to the 7,523 depreciation of Redecard shares on the capital market, partly offset by the 41 12,049 11,421 11,212 10,427 10,417 positive impact from the reduction in interest rates on our fixed rate asset 8,792 9,141 7,482 portfolios. Also during the quarter, the additional allowance for doubtful loans added up to R$6,104 million. It should be noted that such allowance is not taken into account to determine unrealized net income/(loss). Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/09 Jun/09 Sep/09
Parent Company BPI interest (Minority)
7 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Executive Summary Third Quarter of 2009
Balance Sheet R$ million Variation (%) Sep/09- Sep/09- ASSETS Sep 30,09 Jun 30,09 Sep 30,08 Jun/09 Sep/08 Current and Long-term Assets 602,440 586,279 567,749 2.8% 6.1% Cash and Cash Equivalents 10,325 9,378 9,810 10.1% 5.3% Short-term Interbank Deposits 137,964 128,326 124,540 7.5% 10.8% Securities and Derivative Instruments 122,576 124,745 119,643 -1.7% 2.5% Interbank and Interbranch Accounts 17,481 16,542 28,466 5.7% -38.6% Loans, Leasing Operations and Other Credits 237,099 234,490 224,059 1.1% 5.8% (Allowance for Loan Losses) (24,068) (22,915) (12,243) 5.0% 96.6% Other Assets 101,062 95,713 73,475 5.6% 37.5% Foreign Exchange Portfolio 35,723 31,313 31,229 14.1% 14.4% Others 65,339 64,399 42,246 1.5% 54.7% Permanent Assets 9,959 10,108 10,225 -1.5% -2.6% Investments 2,284 2,153 2,302 6.0% -0.8% Fixed and Operating Lease Assets 4,088 4,194 3,490 -2.5% 17.1% Intangible 3,588 3,761 4,432 -4.6% -19.1% TOTAL ASSETS 612,399 596,387 577,974 2.7% 6.0%
R$ million Variation (%) Sep/09- Sep/09- LIABILITIES AND EQUITY Sep 30,09 Jun 30,09 Sep 30,08 Jun/09 Sep/08 Current and Long-term Liabilities 559,863 545,783 527,832 2.6% 6.1% Deposits 189,089 190,094 167,491 -0.5% 12.9% Demand Deposits 23,742 23,857 23,424 -0.5% 1.4% Savings Accounts 44,146 40,848 37,191 8.1% 18.7% Interbank Deposits 2,232 3,147 3,196 -29.1% -30.2% Time Deposits 118,969 122,243 103,680 -2.7% 14.7% Funds Received under Securities Repurchase Agreements 126,664 121,909 137,131 3.9% -7.6% Funds from Acceptances and Issue of Securities 18,538 19,092 19,194 -2.9% -3.4% Interbank and Interbranch Accounts 7,049 6,069 6,123 16.1% 15.1% Borrowings and On-lendings 32,808 32,537 39,572 0.8% -17.1% Financial Instruments and Derivatives 7,458 7,507 10,953 -0.6% -31.9% Technical Provisions for Insurance, Pension Plans and Capitalization 49,978 48,044 40,084 4.0% 24.7% Other Liabilities 128,278 120,530 107,285 6.4% 19.6% Foreign Exchange Portfolio 36,722 31,768 28,674 15.6% 28.1% Subordinated Debt 22,773 22,498 20,134 1.2% 13.1% Others 68,784 66,264 58,477 3.8% 17.6% Deferred Income 232 213 163 9.0% 41.8% Minority Interest in Subsidiaries 3,443 3,122 5,469 10.3% -37.0% Stockholders' Equity of Parent Company 48,862 47,269 44,510 3.4% 9.8% TOTAL LIABILITIES AND EQUITY 612,399 596,387 577,974 2.7% 6.0% Deposits 189,089 190,094 167,491 -0.5% 12.9% Assets Under Management (AUM) 310,346 304,609 265,042 1.9% 17.1% Total Deposits + Assets Under Management (AUM) 499,435 494,703 432,534 1.0% 15.5%
On September 30, 2008, the balance derives from the sum of balances obtained by Itaú and by Unibanco at that date. Also, the balance sheet of September 30, 2008 was adjusted to reflect the full consolidation of Redecard.
8 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Executive Summary Third Quarter of 2009
Income Statement
R$ million Variation 3rd Q/09- jan-sep/09- 3rd Q/09 2nd Q/09 jan-sep/09 jan-sep/08 % % 2nd Q/09 jan-sep/08 Managerial Financial Margin 10,835 10,561 31,966 26,356 274 2.6% 5,610 21.3% Financial Margin with Customers 9,380 9,212 27,834 24,690 167 1.8% 3,144 12.7% Financial Margin with Market 1,456 1,349 4,133 1,667 107 7.9% 2,466 148.0% Result from Loan Losses (3,727) (3,790) (10,942) (6,749) 63 -1.7% (4,193) 62.1% Provision for Loan and Lease Losses (4,296) (4,252) (12,383) (7,856) (45) 1.1% (4,527) 57.6% Recovery of Credits Written Off as Losses 569 461 1,440 1,107 108 23.5% 333 30.1% Net Result from Financial Operations 7,108 6,771 21,024 19,607 338 5.0% 1,417 7.2% Other Operating Income/(Expenses) (2,540) (2,638) (7,990) (6,194) 98 -3.7% (1,796) 29.0% Banking Fees and Charge Revenues 3,853 3,617 10,996 11,379 236 6.5% (383) -3.4% Result from Operations of Insurance, Pension Plans and Capitalization 600 620 1,721 1,658 (21) -3.3% 64 3.8% Non-interest Expenses (6,306) (6,392) (19,055) (17,774) 86 -1.3% (1,281) 7.2% Tax Expenses for ISS, PIS and Cofins (787) (788) (2,378) (2,452) 1 -0.1% 74 -3.0% Equity in the Earnings of Associated Companies 43 79 147 164 (36) -45.3% (17) -10.5% Other Operating Income 57 225 578 830 (168) -74.8% (252) -30.4% Operating Income 4,568 4,132 13,034 13,413 436 10.5% (379) -2.8% Non-operating Income 36 40 53 84 (3) -8.2% (31) -37.3% Income before Tax and Profit Sharing 4,604 4,172 13,086 13,497 432 10.4% (411) -3.0% Income Tax and Social Contribution (1,227) (1,179) (3,548) (3,297) (48) 4.1% (252) 7.6% Profit Sharing (471) (361) (1,238) (1,065) (109) 30.2% (173) 16.2% Minority Interests in Subsidiaries (220) (203) (623) (903) (17) 8.4% 280 -31.0% Recurring Net Income 2,687 2,429 7,677 8,232 258 10.6% (555) -6.7% Data of the first nine months of 2008 derive from the sum of revenues and expenses obtained by Itaú and by Unibanco in that period. Also, the income statement of the first nine months of 2008 was adjusted to reflect the full consolidation of Redecard.
We present below a new perspective on the income statement highlighting the Managerial Financial Margin plus Banking Service Fees, which is primarily derived from the sum of the main items composed by revenues from the banking and insurance, pension plans and capitalization operations. R$ million Variation 3rd Q/09- jan-sep/09- 3rd Q/09 2nd Q/09 jan-sep/09 jan-sep/08 % % 2nd Q/09 jan-sep/08 Managerial Financial Margin Plus Banking Service Fees 16,136 15,755 47,710 42,433 381 2.4% 5,277 12.4% Financial Margin with Customers 9,380 9,212 27,834 24,690 167 1.8% 3,144 12.7% Financial Margin with Market 1,456 1,349 4,133 1,667 107 7.9% 2,466 148.0% Banking Service Fees and Income from Banking Charges 3,853 3,617 10,996 11,379 236 6.5% (383) -3.4% Result from Op. of Insurance, Pension Plans and Capitalization before Retained Claims 1,391 1,352 4,170 3,867 39 2.9% 303 7.8% Other Operating Income 57 225 578 830 (168) -74.8% (252) -30.4% Loan Losses and Retained Claims (4,518) (4,522) (13,391) (8,958) 4 -0.1% (4,432) 49.5% Provision for Loan and Lease Losses (4,296) (4,252) (12,383) (7,856) (45) 1.1% (4,527) 57.6% Recovery of Credits Written Off as Losses 569 461 1,440 1,107 108 23.5% 333 30.1% Retained Claims (791) (732) (2,448) (2,209) (59) 8.1% (239) 10.8% Operating Margin 11,618 11,233 34,319 33,474 385 3.4% 845 2.5% Other Operating Income/(Expenses) (7,014) (7,061) (21,233) (19,977) 47 -0.7% (1,256) 6.3% Non-interest Expenses (6,306) (6,392) (19,055) (17,774) 86 -1.3% (1,281) 7.2% Tax Expenses for ISS, PIS and Cofins (787) (788) (2,378) (2,452) 1 -0.1% 74 -3.0% Other Results 79 118 200 248 (39) -32.9% (49) -19.6% Income before Tax and Profit Sharing 4,604 4,172 13,086 13,497 432 10.4% (411) -3.0% Income Tax and Social Contribution (1,227) (1,179) (3,548) (3,297) (48) 4.1% (252) 7.6% Profit Sharing (471) (361) (1,238) (1,065) (109) 30.2% (173) 16.2% Minority Interests in Subsidiaries (220) (203) (623) (903) (17) 8.4% 280 -31.0%
Recurring Net Income 2,687 2,429 7,677 8,232 258 10.6% (555) -6.7% Note: Other Results is composed of Equity in the Earnings of Associated Companies and Non-operating Income.
9 Management Discussion and Analysis Itaú Unibanco Holding S.A. Analysis of the Net Income Itaú Unibanco Analysis of the Net Income Managerial Financial Margin Annualized Rate of Interest Rate Sensitive Banking Transactions Performed with Customers In the third quarter of 2009, Itaú Unibanco’s managerial financial margin amounted to R$10,835 million, which is 12.8% 13.3% 11.7% 11.0% equal to a 2.6% increase from the second quarter of the 10.5% 10.3% year. The main drivers of such growth are discussed below: 9.5% 9.1% in the third quarter of 2009, we started to consider the financial margin obtained from financial institutions as one of the components of the financial margin with the market, given the Treasury structure is responsible for such management. Hence, we have reclassified the information of the second quarter of 2009 in order to assure comparability. 4th 1st 2nd 3rd 4th 1st 2nd 3rd Q/07 Q/08 Q/08 Q/08 Q/08 Q/09 Q/09 Q/09
R$ million Managerial Financial Margin Regarding the financial margin on spread-sensitive Variation 3rd Q/09 2nd Q/09 Balance % transactions with customers , we observed an increase Customers 9,380 9,212 167 1.8% of 70 basis points in the annual rate, reaching 10.9% Interest Rate Sensitive 1,138 1,047 90 8.6% per year compared to the rate of 10.2% per year in the Banking Transactions Spread-Sensitive Banking previous quarter. The increase of the relative share of the 8,242 8,165 77 0.9% Transactions portfolio of micro, small and medium enterprises was the Market 1,456 1,349 107 7.9% main factor for this variation. Treasury 1,456 1,349 107 7.9% Total 10,835 10,561 274 2.6%
Spread-Sensitive Banking Transactions Managerial financial Margin on Customer Performed with Customers R$ million Transactions Variation 3rd Q/09 2nd Q/09 The managerial financial margin on customer transactions Balance % arises from the use of financial products and services by Average Balance 302,017 319,709 (17,692) -5.5% our customers, including individuals and businesses. For Financial Margin 8,242 8,165 77 0.9% Annualized Rate 10.9% 10.2% 70 b. p. analytical purposes, such margin can be divided into the margins on those transactions that are sensitive to Annualized Rate of Spread-Sensitive Banking Transactions changes in interest rates and on those that are sensitive to Performed with Customers changes in spreads.
11.8% During the third quarter of 2009, the managerial financial 11.0% 10.9% 10.6% 10.2% margin on customer transactions increased by 1.8% to 9.7% 9.8% 9.7% reach R$9,380 million. Transactions that are sensitive to interest rate changes totaled R$1,138 million, or an 8.6% growth from the prior quarter. The increase in the volume of transactions that are sensitive to interest rate changes – primarily affected by increases in stockholders’ equity and tax and pension plan provisions – offset the impact from the declining interest rate quarter-on-quarter. 4th 1st 2nd 3rd 4th 1st 2nd 3rd Q/07 Q/08 Q/08 Q/08 Q/08 Q/09 Q/09 Q/09 Interest Rate Sensitive Banking Transactions Performed with Customers R$ million Managerial Financial Margin on Market Transactions Variation 3rd Q/09 2nd Q/09 Balance % The financial margin on market transactions basically Average Balance 50,179 44,149 6,029 13.7% comprises treasury transactions. Financial Margin 1,138 1,047 90 8.6% In the third quarter of 2009, the financial margin on market Annualized Rate 9.1% 9.5% -40 b.p. transactions amounted to R$1,456 million, a 7.9% growth from the prior period, primarily due to strategies pursued for transactions involving exchange parities.
11 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Analysis of the Net Income Managerial Financial Margin As a result of such changes, the net interest margin - NIM allowance for doubtful loans, net of the recovery of (annualized rate of managerial financial margin, transactions previously written off as losses, the NIM rate disregarding the financial margin on market transactions) after the provisions was 6.4% against 6.0% in the prior stood at 10.7% in the third quarter of 2009, representing a quarter. 60 basis point increase when compared to the second quarter of the year. Considering the effects of the
Analysis of the Managerial Financial Margin R$ million
3rd Q/09 2nd Q/09 Average Financial Average Financial CDI (p.y.) CDI (p.y.) Balance margin Balance margin Demand Deposits + Floatings 32,963 32,737 (-) Compulsory Deposits (9,996) (10,509) Contingent Liabilities (-) Contingent Assets 1,541 2,284
Tax and Social Security Liabilities (-) Deposits in guarantee 17,753 15,353
(-) Tax Credits (28,234) (27,802) Working Capital (Equity + Minority Interests – Permanent Assets – Capital 36,150 32,087 Allocated to Treasury) Interest Rate Sensitive Banking Transactions 50,179 1,138 9.1% 44,149 1,047 9.5% Performed with Customers (A) Average Financial Spread Average Financial Spread Balance margin (p.y.) Balance margin (p.y.) Cash and Cash Equivalents + Interbank Deposits + Securities (*) 82,698 98,810 Interbank and Interbranch Accounts 7,016 5,784 Loans, Leasing and Other Credits 235,795 237,390 (Allowance for Loan Losses) (23,492) (22,276) Spread-Sensitive Banking Transactions 302,017 8,242 10.9% 319,709 8,165 10.2% Performed with Customers (B)
Net Interest Margin (C= A+B) 352,196 9,380 10.7% 363,858 9,212 10.1%
Provision for Loan and Lease Losses (D) (4,296) (4,252)
Recovery of Credits Written Off as Losses (E) 569 461
Net Interest Margin after Provision for Credit Risk (F = C+D+E) 352,196 5,653 6.4% 363,858 5,422 6.0%
Treasury Financial Margin (G) 1,456 1,349
Net Result from Financial Operations (H= F+G) 7,108 6,771
(*) Cash and Cash Equivalents + Interbank Deposits + Securities (-) Interbank Deposits related to Repurchase Liability (-) Derivative financial instruments (-) Banking Transactions Sensitive to Variations in Interest Rate. Note: Spread is the annualized difference between the earnings of assets and their opportunity costs.
Net Interest Margin (NIM) x CDI x BM&F Fixed Rate (1 year)
14.5% 14.4% 13.3% 12.1% 12.7% 11.7% 9.7% 12.8% 12.2% 9.5% 10.5% 11.0% 10.3% 9.8% 9.2% 9.1% 11.3% 11.0% 10.5% 10.2% . 10.3% 10.0% 10.1% 10.7%
4th Q/07 1st Q/08 2nd Q/08 3rd Q/08 4th Q/08 1st Q/09 2nd Q/09 3rd Q/09
NIM CDI BM&F Fixed Rate (1 year)
12 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Analysis of the Net Income Results from Loan and Lease Losses
Expenses for Provision for Loan Losses and Recovery of Credits Written-off as Losses R$ million Variation 3rd Q/09 2nd Q/09 Jan-Sep/09 Jan-Sep/08 3rd Q/09-2nd Q/09 Jan-Sep/09-Jan-Sep/08 Expense for Loan and Lease Losses before additional (4,669) (5,027) (14,070) (7,715) 356 -7.1% (6,356) 82.4% provision for loan losses Reversal (increase) of additional provision for loan losses 373 775 1,687 (141) (402) -51.9% 1,828 -1296.5% Provision for Loan and Lease Losses (4,296) (4,252) (12,383) (7,856) (45) 1.1% (4,527) 57.6% Recovery of Credits Written Off as Losses 569 461 1,440 1,107 108 23.5% 333 30.1% Result from Loan Losses (3,727) (3,790) (10,942) (6,749) 63 -1.7% (4,193) 62.1%
In the third quarter of 2009, the allowance for doubtful loans In the third quarter of 2009, revenues from the recovery of totaled R$4,669 million, representing a 7.1% decline from credits previously written-off as losses added up to R$ 569 the second quarter of the year. Once again, credit models million, a 23.5% growth compared to the prior period, as a used to determine the level of additional provisions were result of the collection and renegotiation efforts undertaken employed, considering the current information on the in the period. evolution of nonperforming ratios and adopting the same Provision for Loan Losses and Credit Portfolio parameters applied at the time the credit is granted. As a result of this analysis, we found out that our current 9.8% 10.2% portfolio requires a total additional provision of R$ 6,104 9.0% 8.3% million, implying the reversal of R$ 373 million from the 7.6% 7.0% provision in the period. Accordingly, the recurring provision 6.2% 5.8% 5.7% 5.5% 6.0% for doubtful loans, net, added up to R$ 4,296 million, or a 5.1% 4,252 4,296 4.4% 4.2% 3,834 1.1% increase when compared to the second quarter of the 4.2% 4.0% 3,430 year. 2,460 2,674 2,722 2,091 1.8% 1.6% 1.8% 1.2% 1.3% 1.4% 1.3% 1.5%
4th Q/07 1st Q/08 2nd Q/08 3rd Q/08 4th Q/08 1st Q/09 2nd Q/09 3rd Q/09
Expenses for Provisions for Loan Losses (R$ million)
Expenses for Provisions for Loan Losses / Credit Portfolio (1)
Provisions for Loan Losses (Specific + Generic) / Credit Portfolio (end of period balance)
Provisions for loan Losses (Specific + Generic + Additional) / Credit Portfolio (end of period balance)
(1) Average balance of the two previous quarters
Coverage Ratio – 90 days Coverage Ratio – 60 days
231% 204% 182% 184% 175% 172% 167% 169% 161% 162% 147% 146% 145% 142% 135% 138%
Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/09 Jun/09 Sep/09 Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/09 Jun/09 Sep/09
Coverage Ratio based on NPL over 90 days Coverage Ratio based on NPL over 60 days The coverage ratio is derived by dividing the balance of remained virtually stable when compared to the prior the provision for doubtful loans by the balance of quarter, as a result of improvement in delinquency of the transactions more than 90 days and more than 60 days new credit vintages. overdue. In the third quarter of 2009, the 90-day coverage ratio decreased 1000 basis points, while the 60-day
13 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Analysis of the Net Income NPL Ratios During the period, nonperforming levels in the individual improvement in performance, as the share of new loans in portfolio remained stable at 8.1% for transactions more the total portfolio increases. On the other hand, the same than 90 days overdue. However, if the nonperforming ratio negative environment arising from the international is considered taking into account transactions more than economic-financial crisis continued to impact the quality 60 days overdue, an improvement becomes apparent, as of the credit assets in the corporate portfolio. Therefore, delinquency levels declined from 10.0% in June to 9.7% in the nonperforming ratio in this portfolio reached 4.1%, September 2009. Such evolution may suggest that the compared to 3.1% in the prior quarter. The overall worst moment of the adverse credit cycle starting at the nonperforming ratio for transactions more than 90 days end of 2008 is already over with respect to the individual overdue was 5.9%, a 50 basis points increase from the portfolio and the trend for the next quarters is a gradual previous quarter.
Ratios R$ million Sep 30, 09 Jun 30, 09 Dec 31, 08 Sep 30, 08 Nonperforming Loans over 60 (a) 16,639 15,744 10,833 8,898 Nonperforming Loans over 90 (b) 14,018 12,604 8,664 6,981 Credit Portfolio (c) 237,099 234,490 241,043 224,059 Credit Assignments (d) 0 0 734 1,536 NPL Ratio [(a)/(c)] x 100 over 60 7.0% 6.7% 4.5% 4.0% NPL Ratio [(b)/(c)] x 100 over 90 5.9% 5.4% 3.6% 3.1% NPL Ratio [(a) + (d)]/[(c)+ (d)] 7.0% 6.7% 4.8% 4.6% x 100 over 60 NPL Ratio [(b) + (d)]/[(c)+ (d)] 5.9% 5.4% 3.9% 3.8% x 100 over 90 (a) Loans overdue for more than 60 days and without (c) Endorsements and sureties not included. generation of revenues on the accrual basis. (d) Balance of Credit Assignments in previous (b) Loans overdue for more than 90 days. quarters.
NPL Ratio 60 days (*) (%) Overdue Loans R$ million Sep 30,09 Jun 30,09 Dec 31,08 Sep30,08 9.8% 10.0% 9.7% Overdue Loans 24,297 23,979 18,115 14,670 8.3% 8.3% 8.1% 7.9% Balance of Provision for Loan and Lease Losses (24,068) (22,915) (19,972) (12,243) 8.1% Difference (228) (1,064) 1,857 (2,427) 7.0% 5.6% 6.7% 5.1% 4.8% 4.9% 4.6% 4.8% 4.8% Overdue loans are credit transactions having at least one 3.9% installment more than 15 days overdue, irrespective of 2.5% 1.9% 1.5% 1.6% 1.5% 1.7% collateral provided.
Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/09 Jun/09 Sep/09
Individuals Total Corporate (*) Nonperforming Loans: Loan transactions overdue more than 60 days. NPL Ratio 90 days (%) NPL Ratio 61-90 days (%)
8.1% 8.1% 6.9% 7.9% 2.0% 6.8% 6.6% 6.5% 6.4% 2.0% 1.7% 1.7% 5.9% 1.5% 1.6% 1.5% 1.5% 5.4% 1.3% 4.2% 4.4% 3.9% 4.0% 3.8% 3.9% 4.1% 1.2% 1.1% 1.0% 1.0% 3.1% 0.8% 0.8% 0.9% 0.8% 0.7% 1.6% 1.9% 0.6% 1.3% 1.3% 1.2% 1.3% 0.3% 0.3% 0.2% 0.3% 0.2%
Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/09 Jun/09 Sep/09 Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/09 Jun/09 Sep/09
Individuals Total Corporate Individuals Total Corporate
14 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Analysis of the Net Income
Banking fee revenues and Banking charge revenues
R$ million Variation 3rd Q/09 2nd Q/09 jan-sep/09 jan-sep/08 3rd Q/09 – 2nd Q/09 jan-sep/09-jan-sep/08 Asset Management A 609 526 1,629 1,681 82 15.7% (52) -3.1% Current Account Services B 544 533 1,549 1,880 11 2.0% (331) -17.6% Loan Operations and Guarantees Provided C 638 564 1,767 1,902 73 13.0% (135) -7.1% Collection Services 290 292 886 868 (3) -0.9% 18 2.1% Credit Cards D 1,463 1,414 4,233 3,959 49 3.5% 274 6.9% Other 310 287 932 1,089 23 8.1% (158) -14.5% Total 3,853 3,617 10,996 11,379 236 6.5% (383) -3.4%
Banking service fees, including banking charges, increased D) Improvement was primarily driven by higher by 6.5% compared to the second quarter of 2009. Such transaction volumes; and increase was mainly driven by: A) Growth in revenues from asset management due to the increased volume of assets under management Other and higher number of business days during the R$ million quarter; 3rd Q/09 2nd Q/09 Variation Foreign Exchange Services 16 15 1 Income from Brokerage and Securities B) Increase driven by increased revenues from fee 79 73 6 Placement packages, as a result of the higher number of current Income from Consultation to Serasa 6 6 (0) Income from Custody Services and account holders; 40 37 3 Management of Portfolio Income from Economic and Financial E71 27 45 C) Increase driven by the higher volume of credit Advisory transactions, both for vehicle financing and leasing Other Services 98 130 (32) and for Small and Mid-sized Companies; Total 310 287 23 E) Growth arising from increased investment bank Banking fee revenues and Banking charge revenues activities, including advisory in mergers and R$ million acquisitions, issuance of shares, and financial 3,940 4,063 consultancy. 3,708 3,846 3,825 3,853 3,526 3,617
4th 1st 2nd 3rd 4th 1st 2nd 3rd Q/07 Q/08 Q/08 Q/08 Q/08 Q/09 Q/09 Q/09
15 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Analysis of the Net Income
Non-interest Expenses R$ million Variation 3rdQ/09 2nd Q/09 jan-sep/09 jan-sep/08 3rdQ/09 - 2nd Q/09 jan-sep/09-jan-sep/08
Personnel Expenses (2,374) (2,463) (7,234) (6,734) 89 -3.6% (500) 7.4%
Other Administrative Expenses (2,774) (2,885) (8,431) (7,706) 110 -3.8% (725) 9.4%
Other Operating Expenses (1,051) (963) (3,130) (3,101) (88) 9.1% (29) 0.9%
Tax Expenses (106) (80) (260) (234) (26) 32.0% (26) 11.3%
Total (6 , 30 6) (6,392) (19,055) (17,774) 86 -1.3% (1,281) 7.2%
During the third quarter of 2009, non-interest expenses D) Concentration of consulting services during the prior declined by 1.3% compared to the prior quarter. quarter; and E) Increased investments in institutional advertising Personnel Expenses campaigns to promote credit and use of credit cards. R$ million
3rdQ/09 2ndQ/09 Variation Other Operating Expenses
Compensation (1,423) (1,406) (17) R$ million Charges A (448) (505) 57 Social Benefits (356) (342) (14) 3rdQ/09 2ndQ/09 Variation Training (26) (25) (1) Employee Resi gnation and Labor Claims B (120) (185) 65 P rovi sion f or conti ngencies F (255) (186) (69) Total (2,374) (2,463) 89 Selling – Credit Cards G (403) (381) (22) Claims (129) (144) 15 Others (265) (252) (13) Personnel expenses were 3.6% down from the previous Total (1,051) (963) (88) quarter, mostly driven by: A) Variation from the non-recurrence of adjustments to The 9.1% increase in other operating expenses compared INSS expenses, as seen in the prior quarter; and to the prior quarter is mainly attributable to: B) Lower labor provision expenses due to the use of prior F) Higher expenses for civil claims and fees; and provision increases. G) Increased expenses relating to the manufacturing and remittance of cards as a result of the migration of the Other Administrative Expenses customer base from Unibanco to Itaú.
R$ million
3rdQ/09 2ndQ/09 Variation Data Processing and Telecommunication C (590) (619) 30 Depreciation and Amortization (335) (350) 15 Number of Employees Facilities (452) (464) 11 Third-Party Services D (674) (760) 86 Financial System Service (73) (86) 12 Advertising, Promotions and Publications E (254) (217) (36) 108,666 108,816 104,967 106,210 Transportation (94) (95) 0 100,953 102,628 103,790 102,754 Materials (74) (73) (2) Security (93) (94) 1 Legal (1) (18) 17 Travel (30) (31) 1 Others (103) (79) (24) Total (2,774) (2,885) 110
Other administrative expenses declined 3.8% quarter-on- quarter. The main drivers were: C) Synergy gains from the migration and unification of Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/08 Jun/09 set/09 operational platforms;
16 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Analysis of the Net Income
Efficiency Ratio—New Methodology Starting this quarter, we have introduced a modification in the methodology to compute the efficiency ratio, Efficiency Ratio (*) excluding the risk portion associated with our banking and insurance and pension plan operations (claims) in the 45.6% 45.4% 45.3% 45.0% components of the ratio. 44.7% 43.4%
Efficiency Ratio (*) 43.6% 46.3% 47.7% 42.3% 42.7% 41.1% During the third quarter, the efficiency ratio dropped to 41.1%, representing a 160 basis points decline compared to the prior quarter, chiefly as a result of synergy gains 2nd Q/08 3rd Q/08 4th /08 1st Q/09 2nd Q/09 3rd Q/09 from the definition of organizational structures and Quarter Figure Cumulative figure of the last 12 months migration and unification of operating platforms.
Non-Interest Expenses (Personnel Expenses + Other Administrative Expenses + Efficiency Other Operating Expenses + Tax Expenses with Other Taxes) (*) = Ratio (Managerial Financial Margin + Banking Service Fees and Charge Revenues + Operating Result of Insurance, Capitalization and Pension Plans before Retained Claims + Other Operating Income + Tax Expenses for PIS/COFINS/ISS)
Performance of Non-Interest Expenses and Ratio of Non-Interest History of Numbers of Points of Service (***) Expenses to Assets (**)
35,637 35,708 35,782 35,808 35,814 35,854 35,576 35,285 (7,015) 1,057 1,034 1,025 997 999 989 978 960 (6,462) (6,357) (6,392) (6,306) 3,728 3,746 3,778 3,827 3,906 3,928 3,939 3,951 (6,012) (5,805) (5,506)
30,852 30,928 30,979 30,984 30,909 30,937 30,659 30,374 5.5% 4.7% 4.6% 4.7% 4.6% 4.0% 4.2% 4.2%
Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/09 Jun/09 Sep/09 ATM Branches Customer Service Branches (CSB) 4th Q/07 1st Q/08 2nd Q/08 3rd Q/08 4th Q/08 1st Q/09 2nd Q/09 3rd Q/09
Non-Interest Expenses (R$ Million) Non-Interest Expenses/Assets (**) (***) Includes Banco Itaú Argentina and Banco Itaú BBA. As from Mar/07, considers Chile and Uruguay companies’ information. Does not include points of sale and ATMs of TecBan – Banco 24h. Paraguay companies’ data was considered. (**) Division of Non-Interest Expenses by the arithmetic average of total assets for the two previous quarters (annualized).
Income Tax and Social Contribution on Net Income Income Tax and Social Contribution on Net Income Social Contribution on Net Income expense payable in the expenses reached R$ 1,227 million in the third quarter of short term does not include the rate increase from 9% to 2009, growing by 4.1% compared to R$ 1,179 million in 15%, as tax credits recorded are sufficient to counter this the prior quarter. Essentially, taxable operating profit effect, considering that management believes that the increased, excluding the effects of the hedge on National Federation of the Financial System – CONSIF will investments abroad and non-recurring income. The prevail in its direct unconstitutionality lawsuit in this effective Income Tax and Social Contribution on Net regard. Income rate in the third quarter of 2009 was 26.7%, against 28.3% in the prior period.
17 Management Discussion and Analysis Itaú Unibanco Holding S.A. Balance Sheet Balance Sheet by Currency Value at Risk Ownership Structure Itaú Unibanco Balance Sheet Securities Portfolio History of Securities Portfolio R$ million Variation (%) Sep 30,09 % Jun 30,09 % Sep 30,08 % Sep/09-Jun/09 Sep/09-Sep/08 Public Securities – Domestic 45,011 36.7% 48,664 39.0% 42,318 35.4% -7.5% 6.4% Public Securities – Foreign 9,447 7.7% 9,440 7.6% 16,661 13.9% 0.1% -43.3% Total Public Securities 54,458 44.4% 58,104 46.6% 58,980 49.3% -6.3% -7.7% Private Securities 23,230 19.0% 24,117 19.3% 19,764 16.5% -3.7% 17.5% PGBL/VGBL Fund Quotas 36,404 29.7% 34,476 27.6% 28,867 24.1% 5.6% 26.1% Derivative Financial Instruments 8,485 6.9% 8,048 6.5% 12,031 10.1% 5.4% -29.5% Total Securities 122,576 100.0% 124,745 100.0% 119,643 100.0% -1.7% 2.5%
Our securities portfolio totaled R$122,576 million as of remained fully satisfactory for the current September 30th, 2009, declining by 1.7% from the closing macroeconomic environment, thus justifying the activity balance in the second quarter of the year. Liquidity levels in the securities portfolio during the quarter.
History of Securities Portfolio
138,344 136,248 124,745 119,643 122,576 105,776 104,286
87,311 Derivative Financial Instruments PGBL/VGBL Fund Quotas Private Securities Public Securities – Foreign Public Securities – Domestic
dic/07 Mar-08 Jun-08 sep/08 dic/09 Mar-09 Jun-09 sep/09
Credit Portfolio R$ million Risk Level AA A B C D - H Total
Credit Operations (*) 56,876 118,740 48,191 15,028 29,859 268,693 Sep 30, 09 % of Total 21.2% 44.2% 17.9% 5.6% 11.1% 100.0%
Credit Operations (*) 57,743 115,102 47,247 17,061 28,814 265,966 Jun 30, 09 % of Total 21.7% 43.3% 17.8% 6.4% 10.8% 100.0% (*) The credit balance includes sureties and endorsements.
Credit Portfolio During the third quarter of 2009, we carried on actions quarter of the year. The largest growth rates were seen in relating to credit granting and monitoring, in order to the following industries during the quarter: Transportation enhance the quality of assets and seek the best risk/return (R$1,197 million, or 12.3%), Real State (R$475 million, or ratio on transactions. The share of credits rated from “AA” 7.1%), Heavy Construction (R$447 million, or 13.6%), to “C” decreased by 30 basis point in the quarter, and is Apparel (R$431 million, or 8.2%), Electro-electronics now 88.9% of the total portfolio. In September 2009, the (R$365 million, or 5.4%), Service Providers (R$342 million, Food & Beverage industry represented the highest risk or 11.4%) and Media (R$340 million, or 14.9%). concentration in the portfolio, or 4.7% of the total. The share of the 100 largest debtors in the portfolio decreased from 21.0% in the second quarter to 20.8% in the third
19 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Balance Sheet Funding At September 30th, 2009, total funds obtained amounted operations (Mortgage–backed Notes/Debentures) to R$648,529 million, a 1.6% increase compared to the increased by 4.1% to reach R$65,497 million. At the same second quarter of the year. time, funds obtained from institutional customers During the period, the process of adjusting the funding decreased by 8.5%, standing at R$20,007 million, while mix to the current economic environment of our time deposits were 2.2% lower, adding up to R$105,896 operations was continued. Accordingly, committed million.
Funding from Customers R$ millions
Sep 30, 09 Jun 30, 09 Sep 30, 08 Sep/09 - Jun/09 Sep/09 - Jun/08
Demand deposits 23,306 23,499 23,424 -0.8% -0.5% Savings deposits 44,132 40,835 37,182 8.1% 18.7% Time deposits 105,896 108,228 85,897 -2.2% 23.3% Mortgage – Backed Notes / Debentures (Committed operations) 65,497 62,917 67,067 4.1% -2.3% (1) Funding from Customers 238,831 235,479 213,570 1.4% 11.8% Institutional customers 20,007 21,865 32,287 -8.5% -38.0% Onlending 20,661 18,400 17,277 12.3% 19.6% (2) Total – Funding from Customers 279,499 275,744 263,134 1.4% 6.2% Assets under management 310,346 304,609 265,042 1.9% 17.1% Technical provisions for insurance, pension plan and capitalization 49,978 48,044 40,084 4.0% 24.7% (3) Total Customers 639,823 628,396 568,260 1.8% 12.6% Deposits from Banks 2,232 3,147 3,196 -29.1% -30.2% Funds from acceptance and issuance of securities abroad 6,474 6,778 7,217 -4.5% -10.3% (4) Total Funding 648,529 638,320 578,672 1.6% 12.1% At the end of September, loans and financing transactions abroad, net of compulsory deposits and available funds. accounted for R$237,099 million out of the total balance of The remaining balance of funds obtained was used to R$264,941 million of funds obtained from customers manage our liquidity. through borrowings, onlending and issuance of securities
Ratio between Loan Portfolio and Funding R$ millions Sep/09 - Sep/09 - Sep 30, 09 Jun 30, 09 Sep 30, 08 Jun/09 Sep/08 Funding from customers 279,499 275,744 263,134 1.4% 6.2% (-) Compulsory deposits + available funds (33,179) (28,470) (51,404) 16.5% -35.5% Funds from acceptance and issuance of securities abroad 6,474 6,778 7,217 -4.5% -10.3% Borrowings 12,147 14,138 22,119 -14.1% -45.1% Total (A) 264,941 268,189 241,065 -1.2% 9.9% Loan Portfolio (B) (*) 237,099 234,490 224,059 1.1% 5.8% B/A 89.5% 87.4% 92.9% 210 b.p. -350 b.p (*) The credit portfolio balance does not include sureties and endorsements.
Funding with Clients
25% 304.6 310.3 276.4 269.9 269.1 20% 266.4 265.0 258.3 15%
10% 174.4 179.5 171.1 171.4 153.0 5% 125.8 103.7 85.2 0%
38.5 39.0 37.4 37.2 39.3 39.3 40.8 44.1 -5% -10%
Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/09 Jun/09 Sep/09 Savings - Growth Rate QoQ Time Deposits + Debentures - Growth Rate QoQ Savings Deposits Time Deposits + Debentures Assets under Management Assets under Management - Growth Rate QoQ
20 Managenent Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Balance Sheet
External Funding The table below highlights the main issues abroad of Itaú Unibanco outstanding on September 30th, 2009.
(1) Main Issuances in Effect US$ millions Balance at Balance at Issue Maturity Instrument Coordinator Issues Amortization Coupon % p.y. Jun 30, 09 Sep 30, 09 Date Date Fixed Rate Notes(2) Merrill Lynch 311 327 08/13/2001 08/15/2011 4.250% Fixed Rate Notes Merrill Lynch and Itaubank 100 100 08/13/2001 08/15/2011 10.000% Fixed Rate Notes Merrill Lynch and Itaubank 80 80 9/11/2001 08/15/2011 10.000% Fixed Rate Notes(3) UBS/Merrill Lynch 500 500 07/29/2005 perpetual 8.700% Fixed Rate Notes(4) Itaú Chile 97 97 07/24/2007 07/24/2017 UF(11) + 3.79% Fixed Rate Notes(5) Itaú Chile 98 98 10/30/2007 10/30/2017 UF(11) + 3.44% Floating Rate Notes Itaubank 393 393 12/31/2002 03/30/2015 Libor(12) + 1.25% Floating Rate Notes(6) HypoVereinsbank and ING 281 293 06/22/2005 06/22/2010 Euribor(13) + 0.375% Floating Rate Notes Calyon 156 (156) - 06/30/2005 09/20/2012 Libor(12) + 0.20% Floating Rate Notes(7) Itaú Europa, HypoVereinsbank and LB Baden Wuerttemberg 140 146 12/22/2005 12/22/2015 Euribor(13) + 0.55% Floating Rate Notes(8) Itaú Europa, UBS Inv. Bank/US and Natexis Banques Populaire 421 439 07/27/2006 07/27/2011 Euribor(13) + 0.32% Floating Rate Notes Dresdner Bank 200 (200) - 09/20/2006 09/20/2013 Libor(12) + 0.50% Medium Term Notes(9) Citibank and UBB Securities 167 183 11/2/2005 11/2/2010 IGP-M + 8.70% Medium Term Notes(10) HSBC 198 218 05/30/2007 05/30/2012 9.21% Other notes(14) 1,853 (222) 1,673 Total 4,995 - (578) 4,546
(1) Balance refers to principal amounts. (9) and (10) Amounts in US$ equivalent on the dates shown to R$ 325 million and R$ 387 (2) Amount in US$ equivalent on the dates shown to JPY 30 billion. million, respectively. (3) Perpetual Bonds. (11) Fomentation Financial Unit. (4) and (5) Amounts in US$ equivalent on the issue dates shown to CHP 46.9 billion, and (12) 180–day Libor. CHP 48.5 billion, respectively. (13) 90–day Euribor. (6), (7) and (8) Amounts in US$ equivalent on the dates shown to € 200 million, € 100 million (14) Structured Notes and € 300 million, respectively.
Equity At September 30th, 2009, Itaú Unibanco’s consolidated increased from 50% to 80%, pursuant to the Brazilian stockholders’ equity amounted to R$ 48,862 million. At Central Bank Circular-Letter 3,383. Such change generated the end of the third quarter, the Basel Ratio stood at 16.3%. a 30 basis point impact on the Basel Ratio. During the period, the share of operating risk in the ratio
Solvency Ratio A breakdown of the Basel ratio is presented below in order shows the amount of hard equity held by a company. In to show the Tangible Common Equity (TCE) ratio, Brazil, non-voting shares basically have an equity function internationally defined as Stockholders’ Equity less and, for this reason, have not been excluded from Tangible intangible assets, goodwill and redeemable preferred Equity. shares. This is a conservative performance indicator, as it
Capital Ratios Sep/09 Jun/09 Stockholders´ Equity of Parent Company 48,862 47,269 (-) Intangible (3,588) (3,761) BIS 16.5 16.3 (=) Tangible Equity (A) 45,274 43,508 Tier I (Core) 13.2 13.1 Risk-weighted Exposure 422,240 409,686 (-) Intangible asset not eliminated from weighting (2,808) (2,942) Tangible 10.7 10.8 (=) Adjusted Risk-weighted Exposure (B) 419,432 406,745
Ratios BIS 16.3% 16.5% Tier I (Core Capital) 13.1% 13.2% Tangible Equity (A/B) 10.8% 10.7%
jun/09 sep/09
21 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Balance Sheet by Currency (*) The Balance Sheet per Currencies shows assets and gains on investments abroad are not taxed, we enter liabilities balances denominated in local and foreign into a hedge (liability position in exchange derivatives) currencies. At September 30th, 2009, the net exchange at a higher volume than the hedged assets, so that the position, including investments abroad, was an expense of result from the total exchange exposure, net of tax US$7,773 million. It should be stressed that Itaú effects, if virtually nil and consistent with our low risk Unibanco’s gap management policy takes into account exposure strategy. the tax effects on this position. As exchange variation R$ million Sep 30,09 Business in Brazil Business Consolidated Itaú Unibanco Assets Abroad Itaú Unibanco Foreign Total Local Currency Itaú Unibanco Currency Cash and Cash Equivalents 10,325 5,756 4,636 1,120 4,873 Short Term Interbank Deposits 137,964 133,828 132,501 1,327 14,690 Securities 122,576 110,448 108,211 2,237 24,487 Loans 235,946 212,651 201,823 10,829 24,544 (Allowance for Loan Losses) (22,915) (22,367) (22,367) 0 (548) Other Assets 118,543 98,393 85,855 12,537 34,151 Foreign Exchange Portfolio 35,723 19,426 7,214 12,212 30,243 Other 82,821 78,966 78,641 325 3,908 Permanent Assets 9,959 26,070 8,531 17,539 1,434 TOTAL ASSETS 612,399 564,778 519,190 45,588 103,631
Derivatives - Purchased Positions 28,966 Futures 9,760 Options 8,267 Swaps 5,989 Other 4,950 TOTAL ASSETS AFTER ADJUSTMENTS (a) 74,554
Sep 30,09 Business in Brazil Business Consolidated Itaú Unibanco Liabilities and Equity Abroad Itaú Unibanco Foreign Total Local Currency Itaú Unibanco Currency Deposits 189,089 160,512 160,363 149 30,511 Funds Received under Securities Repurchase Agreements 126,664 123,862 123,862 0 2,967 Funds from Acceptances and Issue of Securities 18,538 24,014 11,981 12,033 6,554 Borrowings and On-Lendings 32,808 32,736 21,093 11,644 10,403 Interbank and Interbranch Accounts 7,049 6,952 5,419 1,533 96 Derivative Financial Instruments 7,458 6,454 6,116 337 1,014 Other Liabilities 128,278 108,453 94,732 13,721 34,525 Foreign Exchange Portfolio 36,722 20,414 8,344 12,071 30,254 Other 91,556 88,039 86,388 1,651 4,271 Technical Provisions of Insurance, Pension Plans and Capitalization 49,978 49,973 49,973 0 5 Deferred Income 232 216 216 0 16 Minority Interest in Subsidiaries 3,443 2,744 2,744 0 0 Stockholders' Equity of Parent Company 48,862 48,862 48,862 0 17,539 Capital Stock 42,008 42,008 42,008 0 16,546 Net Income 6,854 6,854 6,854 0 993 TOTAL LIABILITIES AND EQUITY 612,399 564,778 525,360 39,418 103,631
Derivatives - Sold Positions 48,958 Futures 24,868 Options 7,410 Swaps 10,877 Other 5,803 TOTAL LIABILITIES AND EQUITY AFTER ADJUSTMENTS (b) 88,376 Foreign Exchange Position Itaú Unibanco (c = a - b) (13,822) Foreign Exchange Position Itaú Unibanco (c) in US$ (7,773) (*) Does not consider eliminations of transactions between local and foreign businesses.
22 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Value at Risk (VaR)
Itaú Unibanco VaR The table below shows Itaú Unibanco consolidated Global decreased volatility levels of the main internal and external VaR, comprising the portfolios of Itaú Unibanco, Itaú BBA, risk factors over the quarter, as well as a conservative Itaú Europa, Itaú Argentina, Itaú Chile and Itaú Uruguay. portfolio management. Itaú Unibanco’s and Itaú BBA’s portfolios are analysed It can be seen that the diversification of business units’ together and segregated by risk factor. risks is significant, which enables the Group to maintain an Itaú Unibanco continues to pursue its policy of operating overall exposure to market risk at very low levels when within low limits in relation to its equity. Consolidated compared to its equity. values at risk, as in all other units, were affected by the
R$ million
VaR by Risk Factor Sep 30, 09 (*) Sep 30, 09 Jun 30, 09 Fixed Rate 143.7 141.8 163.3 TR 17.9 18.1 14.6 Inflation Indexes 20.6 20.8 5.1 Dollar Linked Interest Rate 5.6 4.8 19.8 Foreign Exchange Rate - US$ 22.8 22.9 9.9 Foreign sovereign and Private Securities 16.2 17.7 21.0 Equities 15.5 10.7 11.6 Foreign Interest Rate 8.9 9.8 13.8 Commodities 1.3 1.2 0.2 Itaú Unibanco+ Itaú BBA Other Foreign Exchange Rate 1.3 1.3 0.3 Others 1.9 2.3 1.6 Itaú Europa 2.2 2.2 3.0 Itaú Argentina 1.4 1.4 3.4 Itaú Chile 0.8 0.8 1.1 Itaú Uruguay 0.5 0.5 1.0 Diversification Effect (102.1) (97.6) (76.8) Global VaR 158.4 158.7 193.0 Maximum VaR 208.7 212.8 350.0 Average VaR 172.6 162.5 196.2 Minimum VaR 143.1 112.4 140.2
(*) Includes Flow Book - Itaú Unibanco portfolio. Adjusted for tax effects. VaR refers to the maximum potential loss in 1 day, with a 99% confidence level.
Find out more on risk management in Note 21 to the Financial Statements or in our Investor Relations website, www.itau-unibanco.com/ir, in the Corporate Governance / Risk Management section, and also in Form 20-F, available in the Financial Information/SEC Files section.
23 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Ownership Structure
Management o four ownership structure is mainly the activity of options granted to conglomerate executives intended to optimize the capital allocation to the various under the Option Plan, are set out in Note 16-e to the segments comprising the conglomerate. Consolidated Financial Statements. The average acquisition cost of treasury shares, as well as
The table below shows the number of shares of capital stock and treasury shares on September 30, 2009:
In thousands ITAÚ UNIBANCO HOLDING S.A. Common Shares Non-voting Shares Total Balance of Shares 2,289,286 2,281,650 4,570,936 Shares in Treasury (2) (47,175) (47,177) Total Shares (-) Treasury 2,289,284 2,234,474 4,523,759
10% Stock Bonus On August 12th, 2009, the Brazilian Central Bank ratified a capital was implemented on that same day on the Stock Exchanges. The increase to R$45 billion, through capitalization of revenue reserves cost attributable to bonus shares was R$38.504147 per share, for and a stock bonus of 10%. Itaú Unibanco’s shareholders received at the purposes of the provisions of § 1, article 25 of Regulatory no charge one (1) new share for each lot of ten (10) shares of the Instruction 25/2001 issued by the Federal Revenue Secretariat same class held by them as of August 28th, 2009. The stock bonus (SRF).
The organization chart below summarizes our current ownership structure.
Family Family E.S.A. Free Float Moreira Salles
60.96% Common Shares 39.04% Common Shares 17.84% Non-voting Shares 82.16% Non-voting Shares 34.41% Total 65.59% Total
Itaúsa
50.00% Common Shares 50.00% Common Shares 36.20% Common Shares 33.47% Total 66.53% Total 18.32% Total
IUPAR Itaú Unibanco Bank of America Free Float Participações S.A. 2.47% Common Shares 10.33% Common Shares 51.00% Common Shares 8.43% Non-voting Shares 91.57% Non-voting Shares 25.81% Total 5.41% Total 50.46% Total
Itaú Unibanco Holding S.A.
Itaú Unibanco Holding S.A. Non-voting Shares Free Float Mix
Brazilian ADR Investors (NYSE) (Bovespa) 36% 43% Foreign Investors (Bovespa) 21%
24 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco
Performance in the Stock Market to its current residential and automobile insurance portfolio to a Non-voting Common rd ADRs Ibovespa company to be named Itaú Unibanco Seguros de Automóvel e 3 Q/09 Shares Shares ITUB4 (R$) ITUB3 (R$) ITUB (US$) (points and R$) Residência S.A.. This company will be subsequently transferred to Closing quotation at 06/30/2009* 28.27 23.00 14.39 51,465 High for the quarter 36.21 29.30 20.50 62,017 Porto Seguro. Average for the quarter 31.14 25.24 16.74 55,835 Low for the quarter 26.73 21.73 13.32 48,261 2. In consideration of the transfer, Porto Seguro will issue shares Closing quotation at 09/30/2009 35.70 28.65 20.15 61,517 % change in 3Q09 26.3% 24.6% 40.0% 19.5% representing 30% of its new capital stock, to be delivered to Itaú Average daily trading financial volume (million) 175 2 164 4,581 Unibanco. (*) Itaú Unibanco quotation adjusted by the 10% stock bonus ocurred on August 28, 2009. Itaú Unibanco and Porto Seguro believe that this transaction will Apimec 2009 Cycle enable them to provide the most comprehensive offer in the As part of the nationwide Apimec 2009 Cycle, 14 meetings were Brazilian market to their customers and in particular to their held, comprising 3 in August (São Paulo, Brasília, and Salvador) and Insurance Broker network. 11 in September (Recife, Belém, Manaus, Ribeirão Preto, Vitória, The completion of the alliance between Itaú Unibanco and Porto Goiânia, Curitiba, Cuiabá, Campo Grande, Caxias do Sul and Seguro depends on the approval at the stockholders’ meeting and Uberlândia). During 2009, 22 Apimec meetings were carried out, of the Brazilian Antitrust System (SBDC). On October 16th, 2009, with an attendance of over 3.2 thousand people. It should be SUSEP granted prior authorization for the corporate acts related to noted that 6 meetings were broadcast on the internet (Porto this alliance. Alegre, Belo Horizonte, Fortaleza, Rio de Janeiro, São Paulo and Brasília), with approximately 900 participants via webcast. CBD and Itaú Unibanco Association Agreement - FIC th Expo Money 2009 On August 28 , 2009, Companhia Brasileira de Distribuição and In September and October 2009, Itaú Unibanco took part in Expo Itaú Unibanco completed their negotiations concerning Financeira Money events in Brasília, São Paulo, Vitória and Belo Horizonte. This Itaú CBD S.A. (FIC), leading to: is a financial and investment educational event designed to 1. Itaú Unibanco’s exclusivity obligation towards CBD was released, promote personal finance and financial market knowledge. Itaú in exchange for a R$550 million payment by the Bank to CBD. Unibanco will also be part of the Expo Money event to be held in 2. The exclusivity term granted by CBD to FIC was extended to Rio de Janeiro and Porto Alegre, on November 11-12 and August 2029. The Bank made a R$50 million payment in this December 2-3, respectively, for a total of 6 Expo Money events in connection. Brazil in 2009. The association comprises stores of all types of formats and banners that are presently directly or indirectly operated or owned Dow Jones Sustainability Index – 10 years by CBD, including supermarkets, hypermarkets, convenience Itaú Unibanco has been selected for inclusion in the Dow Jones stores, electro-electronic appliance stores, “atacarejo” (a mixture of Sustainability World Index (DJSI) portfolio, 2009/2010 version – the retail and wholesale) stores, gas stations, drugstores, and e- only Latin American bank that continues to be part of this index commerce (internet). since its inception in 1999. The current DJSI comprises 317 Agreement between Itaú Seguros and Tempo companies from 26 countries, of which only 7 are Brazilian On September 24th, 2009, Itaú Unibanco, through its subsidiary Itaú organizations. The inclusion in DJSI reflects Itaú Unibanco’s long- Seguros S.A., and Tempo Participações S.A. executed an term commitment to values such as business ethics, transparency, Understanding Memorandum in order to transfer 100% of the legal compliance, corporate governance and social, cultural and stock capital of Unibanco Saúde Seguradora S.A. to Tempo. In environmental responsibility. A comparison of scores assigned to consideration of the transfer, Tempo will pay the amount of R$55 Itaú Unibanco and the banking sector at large is presented below: million to Itaú Seguros, on the date when Unibanco Saúde shares 2009* are transferred. Depending on the performance of Unibanco Dimension Itaú Banking % Saúde operations over the 12 subsequent months, Itaú Seguros Unibanco Sector will be entitled to a further payment of up to R$45 million. The Economic 92 63 46 agreement is subject to the approval of the competent bodies, Social 79 46 72 including the National Agency for Supplementary Health (ANS) Enviromental 69 37 86 and the Brazilian Antitrust System (SBDC). General 82 51 61 (*) 0 to 100 escale. Market Capitalization (*) x Ibovespa Index
Association with Porto Seguro 161.0 166.6 rd 140,5 On August 23 , 2009, Itaú Unibanco and Porto Seguro entered 115,3 107.9 into an agreement in order to unify their residential and 80.8 63.9 66.2 61.5 automobile insurance operations. An Operating Agreement for the 54.5 44.4 41,2 33.4 37.5 exclusive offer and distribution of residential and automobile 23,8 26.2 insurance products to Itaú Unibanco’s customers was also 11.3 22.2 2002 2003 2004 2005 2006 2007 2008 September October executed. The new association will be implemented via a 30, 2009 14, 2009
corporate reorganization, whereby: Market Capitalization - R$ billion Ibovespa - thousand points 1. Itaú Unibanco will transfer 100% of assets and liabilities relating (*) Average price of non-voting shares on the last trading day of the period multiplied by total shares outstanding.
25 Management Discussion and Analysis Itaú Unibanco Banco Múltiplo S.A. Pro forma Financial Statements by Segment Itaú Unibanco Pro Forma Financial Statements by Segment
Allocated Capital The pro forma financial information takes into account the segments, as well as the adjustments for Minority Interests impacts associated with the allocation of capital. To this in Subsidiaries and the Market Financial Margin. end, adjustments were made to the financial statements, Income Tax and Social Contribution on Net Income effects based on a proprietary model that considers the credit, on the payment of Interest on Own Capital for each market and operating risks, as well as the regulatory segment were reversed and subsequently reallocated to framework and the level of fixed asset formation. the individual segments in proportion to the amount of We then determine the Risk Adjusted Return on Capital Tier I capital, while the financial statements were adjusted (Raroc), an operating performance indicator consistently in order to replace net book value with market level adjusted to the capital required to support the risk of asset funding. The financial statements were then adjusted to and liability positions taken. include revenues associated with the allocated capital. The Adjustments made to the balance sheet and statement of cost of subordinated debt and the related remuneration at income for the period are based on the business units’ market prices were allocated to the segments on a pro rata managerial information. basis, in accordance with the Tier I allocated capital. The Corporate+Treasury column shows the results Finally, in this quarter we changed the volume of allocated associated with excess capital, excess subordinated debt capital to operations according to the evolution of and the cost of carry of the net balance of deferred taxes. It proprietary models aiming at compliance with Basel II also shows the cost of the treasury operation, reversal of agreement rules. The diagram below shows the changes the additional provision for doubtful loans, equity in the introduced in the financial statements to reflect the earning of companies not yet linked to the different impacts of capital allocation.
Return on Adjustments to the Financial Statements Return on Stockholders’ Allocated Tier I Equity Capital Adjustment in the The financial statements Financial Statements to were adjusted to include replace the net book allocated capital (Tier I value of Stockholders’ and II) based on Pro Forma Net Income Equity and Subordinated proprietary models, as Net Income Debt with funding at well as their respective Stockholders’ Equity market prices. revenues (CDI) and Allocated Tier I expenses (cost of Capital subordinated debt).
During the third quarter of 2009, as a result of the restructuring process currently underway at Itaú Unibanco, we revisited the criteria for disclosure of business structures and introduced certain changes in the model, which are described above in “Allocated Capital”. Accordingly, the segment managerial statements for the second quarter of 2009 are re-presented to enable the comparison between periods.
27 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Pro Forma Financial Statements by Segment The pro forma financial statements of the Commercial Bank, Itaú BBA and Consumer Credit segments presented below are based on managerial models, to reflect better the performance of the business units.
On September 30, 2009 R$ million Itaú Unibanco Pro Forma ASSETS Corporation + Commercial Bank Itaú BBA Consumer Credit Itaú Unibanco Treasury Current and Long-Term Assets 452,855 157,431 71,197 46,564 602,440 Cash and Cash Equivalents 9,630 399 - - 10,325 Short-term Interbank Deposits 192,686 43,727 - 7,961 137,964 Short-term Interbank Deposits in the Market 141,680 1,499 - 7,961 137,964 Short-term Interbank Deposits in Intercompany* 51,006 42,228 - - - Securities 89,982 37,719 743 9,387 122,576 Interbank and Interbranch Accounts 17,439 147 29 5 17,481 Loans 97,728 65,699 72,042 1,632 237,099 (Allowance for Loan Losses) (12,931) (2,178) (6,499) (2,460) (24,068) Other Assets 58,323 11,918 4,881 30,039 101,062 Foreign Exchange Portfolio 30,614 9,171 - (54) 35,723 Others 27,708 2,747 4,881 30,093 65,339 Permanent Assets 7,631 478 517 1,333 9,959 TOTAL ASSETS 460,486 157,909 71,713 47,898 612,399 Itaú Unibanco Pro Forma LIABILITIES AND EQUITY Corporation + Commercial Bank Itaú BBA Consumer Credit Itaú Unibanco Treasury Current and Long-Term Liabilities 446,020 144,834 64,596 29,668 559,863 Deposits 187,257 77,539 50 2,745 189,089 Deposits with Clients 166,825 26,533 50 2,745 189,089 Deposits with Intercompany* 20,432 51,006 - - - Securities Repurchase Agreements 69,735 19,066 55,810 9,970 126,664 Securities Repurchase Agreements in the Market 47,939 14,832 55,810 9,970 126,664 Securities Repurchase Agreements with Intercompany* 21,796 4,234 - - - Funds from Acceptances and Issue of Securities 24,196 4,604 - - 18,538 Interbank and Interbranch Accounts 5,001 2,185 2 - 7,049 Borrowings and On-Lendings 11,361 20,693 755 - 32,808 Derivative Financial Instruments 6,345 4,722 - - 7,458 Other Liabilities 92,148 16,025 7,980 16,953 128,278 Foreign Exchange Portfolio 30,844 9,886 - - 36,722 Others 61,304 6,139 7,980 16,953 91,556 Technical Provisions of Insurance, Capitalization and Pension Plans 49,978 - - - 49,978 Deferred Income 180 51 - - 232 Minority Interest in Subsidiaries - - - 3,795 3,443 Allocated Tier I Capital 14,286 13,024 7,117 14,435 48,862 TOTAL LIABILITIES AND EQUITY 460,486 157,909 71,713 47,898 612,399 *The Intercompany were eliminated in the Consolidated. Pro Forma Financial Statement by Segment R$ million Itaú Unibanco Pro Forma 3rd Quarter/09 Corporation + Commercial Bank Itaú BBA Consumer Credit Itaú Unibanco Treasury Managerial Financial Margin 6,153 963 2,729 991 10,835 Financial Margin with Customers 5,688 963 2,729 - 9,380 Financial Margin with the Market - - - 1,456 1,456 Financial Margin with the Corporation 464 - - (464) - Result from Loan Losses (2,367) (180) (1,553) 373 (3,727) Provision for Loan and Lease Losses (2,757) (186) (1,726) 373 (4,296) Recovery of Credits Written Off as Losses 390 6 173 - 569 Net Result from Financial Operations 3,786 782 1,176 1,364 7,108 Other Operating Income/(Expenses) (1,857) (86) (464) (132) (2,540) Banking fees and charge revenues 2,127 311 1,370 29 3,853 Operating Result of Insurance, Pension Plans and Capitalization 580 0 19 0 600 Non-interest Expenses (4,126) (307) (1,669) (211) (6,306) Tax Expenses for ISS, PIS and Cofins (493) (64) (239) 7 (787) Equity in Income (Losses) of Unconsolidated Investments 0 0 - 43 43 Other Operating Income 55 (27) 56 (0) 57 Operating Income 1,929 696 712 1,232 4,568 Non-operating Income 53 (2) (16) 2 36 Income Before Tax and Profit Sharing 1,982 694 696 1,235 4,604 Income Tax and Social Contribution (638) (164) (194) (232) (1,227) Profit Sharing (303) (83) (37) (48) (471) Minority Interests (0) - - (220) (220) Recurring Net Income 1,041 446 465 735 2,687 (RAROC) – Return on Average Tier I Allocated Capital 28.8% 15.9% 24.9% 19.8% 22.4% Efficiency Ratio 44.8% 25.9% 42.4% 20.5% 41.1% Note: Non-interest Expenses item is made up of Personnel Expenses, Other Administrative Expenses, Tax Expenses and Other Operating Expenses. Note: The Consolidated figures do not represent the sum of the parts, because there are transactions between the companies that were eliminated only in the Consolidated figures.
28 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Pro Forma Financial Statements by Segment
On June 30, 2009 R$ million Itaú Unibanco Pro Forma ASSETS Corporation + Commercial Bank Itaú BBA Consumer Credit Itaú Unibanco Treasury Current and Long-Term Assets 445,933 160,117 69,372 48,881 586,279 Cash and Cash Equivalents 9,146 232 - - 9,378 Short-term Interbank Deposits 187,873 51,741 - 9,745 128,326 Short-term Interbank Deposits in the Market 132,225 4,255 - 9,745 128,326 Short-term Interbank Deposits in Intercompany* 55,648 47,486 - - - Securities 97,083 27,872 - 9,799 124,745 Interbank and Interbranch Accounts 16,525 171 - 5 16,542 Loans 95,524 66,034 70,792 2,145 234,490 (Allowance for Loan Losses) (11,875) (1,975) (6,240) (2,826) (22,915) Other Assets 51,656 16,043 4,820 30,011 95,713 Foreign Exchange Portfolio 24,222 13,815 - - 31,313 Others 27,434 2,228 4,820 30,011 64,399 Permanent Assets 7,849 558 477 1,222 10,108 TOTAL ASSETS 453,782 160,675 69,849 50,103 596,387 Itaú Unibanco Pro Forma LIABILITIES AND EQUITY Corporation + Commercial Bank Itaú BBA Consumer Credit Itaú Unibanco Treasury Current and Long-Term Liabilities 438,956 151,189 62,001 31,657 545,783 Deposits 192,829 81,407 9 3,697 190,094 Deposits with Clients 168,385 25,759 9 3,697 190,094 Deposits with Intercompany* 24,444 55,648 - - - Securities Repurchase Agreements 66,574 22,856 54,747 10,913 121,909 Securities Repurchase Agreements in the Market 43,532 14,738 54,747 10,913 121,909 Securities Repurchase Agreements with Intercompany* 23,042 8,118 - - - Funds from Acceptances and Issue of Securities 20,674 4,440 - - 19,092 Interbank and Interbranch Accounts 4,264 1,962 3 - 6,069 Borrowings and On-Lendings 14,524 17,493 531 - 32,537 Derivative Financial Instruments 6,980 3,917 - - 7,507 Other Liabilities 85,067 19,114 6,712 17,046 120,530 Foreign Exchange Portfolio 24,245 14,247 - - 31,768 Others 60,823 4,867 6,712 17,046 88,762 Technical Provisions of Insurance, Capitalization and Pension Plans 48,044 - - - 48,044 Deferred Income 173 40 - - 213 Minority Interest in Subsidiaries - - - 3,122 3,122 Allocated Tier I Capital 14,653 9,446 7,848 15,323 47,269 TOTAL LIABILITIES AND EQUITY 453,782 160,675 69,849 50,103 596,387 *The Intercompany were eliminated in the Consolidated. Pro Forma Financial Statement by Segment R$ million Itaú Unibanco Pro Forma 2nd Quarter/09 Corporation + Commercial Bank Itaú BBA Consumer Credit Itaú Unibanco Treasury Managerial Financial Margin 6,228 983 2,784 565 10,561 Financial Margin with Customers 5,445 983 2,784 - 9,212 Financial Margin with the Market - - - 1,349 1,349 Financial Margin with the Corporation 783 - - (783) - Result from Loan Losses (2,610) (403) (1,545) 767 (3,790) Provision for Loan and Lease Losses (2,863) (409) (1,746) 767 (4,252) Recovery of Credits Written Off as Losses 253 7 201 - 461 Net Result from Financial Operations 3,618 581 1,239 1,332 6,771 Other Operating Income/(Expenses) (1,959) (116) (474) (89) (2,638) Banking fees and charge revenues 1,969 272 1,376 (4) 3,617 Operating Result of Insurance, Pension Plans and Capitalization 601 (0) 19 (0) 620 Non-interest Expenses (4,260) (295) (1,644) (188) (6,392) Tax Expenses for ISS, PIS and Cofins (480) (61) (271) 24 (788) Equity in Income (Losses) of Unconsolidated Investments (0) 1 - 79 79 Other Operating Income 210 (32) 47 - 225 Operating Income 1,659 465 766 1,243 4,132 Non-operating Income 45 (1) (12) 7 40 Income Before Tax and Profit Sharing 1,704 464 754 1,250 4,172 Income Tax and Social Contribution (508) (15) (202) (454) (1,179) Profit Sharing (255) (63) (24) (20) (361) Minority Interests - - - (203) (203) Recurring Net Income 942 385 528 574 2,429 (RAROC) – Return on Average Tier I Allocated Capital 22.6% 15.4% 28.0% 19.3% 21.1% Efficiency Ratio 46.0% 25.4% 41.6% 32.1% 42.7% Note: Non-interest Expenses item is made up of Personnel Expenses, Other Administrative Expenses, Tax Expenses and Other Operating Expenses. Note: The Consolidated figures do not represent the sum of the parts, because there are transactions between the companies that were eliminated only in the Consolidated figures.
29 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Commercial Bank
Our results from the offer of financial products and Assets Under Management (AUM) R$ millions banking services to retail customers (individuals and very 20.7% 21.3% 21.4% 20.1% 20.6% 20.6% 20.1% 20.0% 20.1% small companies), high-end, wealthy customers (private 305 310 bank), as well as small and mid-sized companies are 277 282 266 265 269 included in our Commercial Bank segment. 250 258 59 61 44 48 42 52 61 The recurring net income of the Commercial Bank 31 58 segment totaled R$1,041 million in the third quarter of 2009, growing by 10.5% from the prior quarter. The 249 224 232 234 245 segment credit portfolio reached R$97,728 million, a 2.3% 219 214 200 208 increase compared to the previous quarter. During the period, the financial margin was positively impacted by the increased number of transactions with very small, Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/09 Jun/09 Sep/09 small and mid-sized companies. Expenses from credit Investment Funds Managed Portfolios Market Share assumption risk were benefited by the recovery of credits previously written-off as losses, as a result of campaigns Assets under management totaled R$310,346 million in run in the quarter. Banking service fees reflect gains arising the third quarter of 2009, or a 1.9% growth from the prior from management of assets and expansion in credit card quarter. According to the Brazilian Association of Financial operations. Accordingly, return on allocated capital stood and Capital Market Entities (ANBIMA) global management at 28.8% per annum, while the efficiency ratio reached ranking, Itaú Unibanco has become the second largest 44.8% in the period. Also, in the third quarter, the branch fund manager in Brazil, with a market share of 21.4%. transformation process began, under the leadership of teams responsible for the integration of Itaú’s and Unibanco’s operations. This process is expected to be Real Estate Credit completed by the end of 2010. During the third quarter of 2009, our real estate credit operation maintained significant growth rates. The portfolio balance amounted to R$7,832 million, a 10.2% increase compared to the second quarter of the year. Payroll Credit Between July and September 2009, the volume of new The payroll credit portfolio reached R$6,472 million at real estate financing for individuals added up to R$517 September 30th, 2009, a decrease of 3.2% in comparison to million, while credits granted to companies reached R$922 the prior quarter, related to the runoff of our acquired million. portfolio. New Contracts R$ millions Variation 3rd Q/09 - 3rd Q/09 2nd Q/09 % 2nd Q/09 Individuals 517 508 9 1.8% Companies 922 708 214 30.2% New contracts 1,439 1,216 223 18.3%
Credit Cards Itaú Unibanco is a leader in the Brazilian credit card segment. Itaucard, Unicard and Hipercard offer a wide range of products to 23.5 million customers, both account holders and non-account holders. In September 2009, the volume of customer transactions on credit cards was R$21,076 million, a 4.8 growth from the prior quarter.
30 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco
Quantity of Credit Card Accounts* in thousands Consumer Credit 23,027 23,152 23,233 23,708 23,520 The Consumer Credit segment includes the results of financial products and services provided to non-current account holders. During the third quarter of 2009, the Consumer Credit segment net income amounted to R$ 465 million, a 11.9% decline compared to the second quarter of the year. Return on allocated capital reached 24.9% per year and the efficiency ratio stood at 42.4% in the period. The credit portfolio totaled R$ 72.042 million in September 2009, growing by 1.8% compared to the prior quarter. The segment net income was impacted by a decrease in the managerial financial margin, primarily due Sep/08 Dec/08 Mar/09 Jun/09 Sep/09 to lower spreads driven by changes in the portfolios’ mix. *Does not include additional cards. Amount of Transactions R$ millions Vehicle Financing 20,671 21,076 In the third quarter of 2009, the segment activities geared 20,102 to financing of new, used and heavy vehicles and 18,092 18,217 motorcycles maintained the strategic focus of adjusting the portfolio mix in order to improve the risk/return ratio of the transactions. New vehicle financing and leasing transactions was increased in R$6.3 billion, growing by 8.2% from the second quarter of 2009. At the end of September, in anticipation of the end of the tax incentive on the acquisition of vehicles, both the demand and number of deals were significantly high, thus expanding the volume of credits granted. 3rd Q/08 4th Q/08 1st Q/09 2nd Q/09 3rd Q/09 Credit Card Loan Portfolio Joint Ventures Itaú Unibanco has Joint Ventures and operating agreements with over 300 renowned retailers in the 29.9% 29.0% 27.0% 27.8% 27.4% 31.0% Brazilian market, encompassing more than 17 million customers. The Joint Ventures’ credit portfolios amounted to R$7,557 million in September 2009. 70.1% 71.0% 73.0% 69.0% 72.2% 72.6%
Jun/08 Sep/08 Dec/08 Mar/09 Jun/09 Sep/09 Non-financed Financed Itaú BBA Itaú BBA is our segment responsible for banking transactions with large corporations and investment bank activities. In the third quarter of 2009, Itaú BBA’s net profit totaled R$446 million, a 15.9% growth from the prior quarter. Return on allocated capital was 15.9% per year, while the efficiency ratio stood at 25.9% in the period. The financial margin on customer transactions was impacted by the reduced volume of structured transactions and decline in the loan spread, as a result of the intense competition involved in such transactions. The provision for doubtful loans is attributable to risk re-ratings. Investment bank activities significantly helped to increase banking service fees.
31 Management Discussioon and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Insurance, Pension Plans and Capitalization
The pro forma financial statements below were prepared based on Itaú Unibanco internal and managerial information and are intended to identify the performance of the insurance-related businesses.
On September 30, 2009 R$ million Life and ASSETS Insurance Capitalization Consolidated Pension Plans Current and Long-Term Assets 11,732 44,542 2,595 57,815 Cash and Cash Equivalents 159 9 6 174 Securities 4,007 43,843 2,495 50,322 Other Assets 7,565 690 94 7,319 Permanent Assets 425 8 44 469 TOTAL ASSETS 12,156 44,550 2,639 58,285
Life and LIABILITIES AND EQUITY Insurance Capitalization Consolidated Pension Plans Current and Long –Term Liabilities 11,002 42,271 2,468 54,680 Technical Provisions – Insurance 7,437 669 - 7,077 Technical Provisions – Pension Plans and VGBL - 40,720 - 40,720 Technical Provisions – Capitalization - - 2,212 2,194 Other Liabilities 3,564 883 256 4,689 Allocated Tier I Capital 1,154 2,280 171 3,605 TOTAL LIABILITIES AND EQUITY 12,156 44,550 2,639 58,285
Income Statement R$ million Life and 3rd Quarter/09 Insurance Capitalization Consolidated Pension Plans Earned Premiums (a) 1,480 183 - 1,662 Result of Pension Plans and Capitalization (b) - 20 144 160 Retained Claims (c) (735) (55) - (790) Selling Expenses (d) (403) (21) (17) (441) Other Operating Income/(Expenses) of Insurance Operations (e) (79) (10) (1) (85) Underwriting Margin (f=a+c+d+e) 262 97 - 359 Result from Insurance, Pension Plans and Capitalization (g=b+f) 262 117 126 506 Managerial Financial Margin 70 113 36 219 Banking fees and charge revenues - 129 - 128 Non-interest Expenses (178) (60) (43) (280) Tax Expenses for ISS, PIS and Cofins (29) (11) (8) (48) Other Operating Income 0 4 0 5 Operating Income 126 293 111 530 Non-operating Income 7 0 2 9 Income Before Income Tax and Social Contribution 132 293 114 539 Income Tax/Social Contribution (38) (83) (37) (158) Profit Sharing (6) (1) 0 (7) Recurring Net Income 88 210 76 374 Note: The information on VGBL was classified together with the pension plan products. Non-interest Expenses comprise Personnel Expenses, Other Administrative Expenses, Tax Expenses, and Other Operating Expenses. The insurance subsegment includes 100% of Itaú XL. The Underwriting Margin refers to the insurance business.
32 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Insurance, Pension Plans and Capitalization
On June 30, 2009 R$ million Life and ASSETS Insurance Capitalization Consolidated Pension Plans Current and Long-Term Assets 12,189 42,418 2,540 55,808 Cash and Cash Equivalents 99 14 8 121 Securities 4,031 41,717 2,437 48,089 Other Assets 8,058 687 95 7,599 Permanent Assets 436 9 44 481 TOTAL ASSETS 12,624 42,427 2,584 56,289
Life and LIABILITIES AND EQUITY Insurance Capitalization Consolidated Pension Plans Current and Long –Term Liabilities 11,419 40,264 2,422 52,759 Technical Provisions – Insurance 7,766 645 - 7,096 Technical Provisions – Pension Plans and VGBL - 38,785 - 38,785 Technical Provisions – Capitalization - - 2,178 2,159 Other Liabilities 3,653 834 245 4,719 Allocated Tier I Capital 1,206 2,163 162 3,531 TOTAL LIABILITIES AND EQUITY 12,624 42,427 2,584 56,289
Income Statement R$ million Life and 2nd Quarter/09 Insurance Capitalization Consolidated Pension Plans Earned Premiums (a) 1,464 187 - 1,651 Result of Pension Plans and Capitalization (b) - 18 112 121 Retained Claims (c) (669) (62) - (731) Selling Expenses (d) (450) (24) (8) (483) Other Operating Income/(Expenses) of Insurance Operations (e) (41) (19) (0) (32) Underwriting Margin (f=a+c+d+e) 304 81 - 385 Result from Insurance, Pension Plans and Capitalization (g=b+f) 304 100 103 526 Managerial Financial Margin 72 115 30 190 Banking fees and charge revenues - 114 - 114 Non-interest Expenses (210) (69) (53) (332) Tax Expenses for ISS, PIS and Cofins (38) (8) (6) (53) Other Operating Income 10 24 0 35 Operating Income 138 275 74 478 Non-operating Income 7 0 2 10 Income Before Income Tax and Social Contribution 145 276 76 488 Income Tax/Social Contribution (40) (76) (25) (138) Profit Sharing (7) (1) 0 (8) Minority Interests - - - 6 Recurring Net Income 98 199 52 348 Note: The information on VGBL was classified together with the pension plan products. Non-interest Expenses comprise Personnel Expenses, Other Administrative Expenses, Tax Expenses, and Other Operating Expenses. The insurance subsegment includes 100% of Itaú XL. The Underwriting Margin refers to the insurance business.
33 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Insurance, Pension Plans and Capitalization
Insurance Composition of earned premiums The result of the insurance segment, represented by the 3rd Quarter/09 2nd Quarter/09 underwriting margin, declined 13.7% compared to the 14.8% 14.8% prior quarter as a result of the increased number of 23.5% 24.3% retained claims in particular “Extended Warranty” product. This effect was due to unbilled premiums calculation 17.1% criteria, as required by SUSEP, which positively impacted 18.3% earned premiums and impacted negatively retained claims and other non-operating insurance revenues/ 3.1% 3.9% 30.7% expenses. 9.5% 8.2% 31.7%
Automobile Life and Property Personal Risk Accidents
Extended Warranty Transportation Others
Note: Insurance charts do not include the Itauseg Saúde companies and include the Life line of Itaú Vida e Previdência S.A. Life and Pension Plan The recurring net income of the life and pension plan The “Property Risk” and “Extended Warranty” products subsegment increased by 5.6% given the improved results increased their shares of Retained Premiums compared to from the managment fees and the reduction of 3% in the prior quarter, partially compensating the 100 basis retained claims, mainly in Dpvat operations. point decrease in “Life and Personal Accident” products.
Number of Contracts – Mass products Capitalization In thousands The recurring net income of the capitalization subsegment increased by 47.6% from the prior quarter, chiefly as a 6,549 6,699 6,572 6,399 6,270 result of the 15.4% growth in funding with capitalization 5,995 5,935 6,057 bonds, as a result of the promotional campaign in August, 1,235 1,287 1,240 1,296 1,017 991 1,068 1,178 and the raise in the managerial financial margin due to higher result on funds. In this quarter the portfolio totaled 11.6 million active 3,772 3,756 3,793 3,903 3,995 3,859 4,281 4,158 contracts, an increase of 2.9% compared to the previous quarter. 1,206 1,188 1,196 1,261 1,267 1,232 1,178 1,119
Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/09 Jun/09 Sep/09
Automobile Life and Personal Residential, Condomimium and Accidents Business
The number of policies declined by 1.9% from the prior period, with a 2.9% decrease in Life and Personal Accidents.
34 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Insurance, Pension Plans and Capitalization
Combined Ratio Pension Plan Technical Provisions The combined ratio, which shows the operating cost As of September 30th, 2009, technical provisions added up efficiency in relation to income from premiums earned, to R$40.7 billion, a 5.0% growth from the prior period. R$ million changed 33 basis points compared to the prior quarter. 38,785 40,720 An increase in the claim ratio was the main driver of the 36,722 34,076 163 basis point decrease in the underwriting margin and 31,787 32,802 29,813 the aggravation in the combined ratio. 28,413 25,208 21,888 23,750 20,239 18,625 19,364 16,087 17,146
Combined Ratio and Underwriting Margin 10,286 10,548 11,052 8,259 8,574 8,887 9,102 9,457 Underwriting Margin 24.6% 24.3% 4,067 4,093 4,275 4,336 4,380 4,548 4,487 4,460 21.3% 22.3% 21.7% 22.7% 20.7% 19.8%
Combined Ratio Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/09 Jun/09 Sep/09 93.9% 93.3% 90.9% 90.2% 91.8% 93.5% 90.7% 91.0%
16.9% 17.7% VGBL PGBL Traditional and Others 16.6% 17.6% 16.9% 18.3% 18.0% 19.5%
26.5% 28.2% 26.4% 26.1% 26.8% 24.9% 26.4% 24.6%
48.2% 47.9% 46.5% 48.1% 49.8% 50.4% 46.3% 47.0%
4th Q/07 1st Q/08 2nd Q/08 3rd Q/08 4th Q/08 1st Q/09 2nd Q/09 3rd Q/09
Insurance Claims/ Selling Expenses/ Administrative Expenses and Capitalization Technical Provisions Earned Premiums Earned Premiums Others/Earned Premiums Capitalization technical provisions remained stable Underwriting Margin (% Earned Premiums) compared to the prior quarter, standing at R$2.2 billion as Note: combined ratio is the sum of the following indices: retained claims/earned of September 30th, 2009. premiums, selling expenses/earned premiums and administrative expenses + other operating income and expenses/ earned premiums R$ million The underwriting margin is the sum of: earned premiums, retained claims, selling expenses and other operating income (expenses) of insurance operations. 2,102 2,137 2,159 2,194 1,930 1,944 1,986 2,015 Note: The chart does not include the Itauseg Saúde company and includes the Life line of Itaú Vida e Previdência S.A.
Insurance Technical Provisions As of September 30th, 2009, technical provisions remained stable at R$7.1 billion. R$ million Dec/07 Mar/08 Jun/08 Sep/08 Dec/08 Mar/09 Jun/09 Sep/09
6,904 7,008 7,096 7,077
5,232 4,595 4,743 4,675
---
Dec/07 Mar/08 Jun/08 Sep/08 Dec/08(*) Mar/09 Jun/09 Set09
Note: According to Circular 379/2008 of Susep, beginning in 2009 the technical provisions are shown without deducting the balance of reinsurance. We have adjusted Dec/08 for comparison purposes.
35 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Activities Abroad Financial Statements Below we present the financial statements of our main units abroad.
On September 30, 2009 R$ million
Consolidated Banco Consolidated Consolidated Interbanco S.A. ASSETS Itaú Europa Itaú Argentina Itaú Chile Itaú Uruguay (Paraguay) Current and Long-term Assets 38,463 1,940 9,221 2,947 1,738 Cash and Cash Equivalents 2,052 89 358 456 129 Short-term Interbank Deposits 2,208 158 4 377 225 Securities 1,611 216 1,797 447 285 Loans 5,349 1,125 6,887 1,123 822 (Allowance for Loan Losses) (61) (36) (172) (66) (34) Other Credits 27,175 79 248 100 39 Other Assets 128 309 99 511 272 Permanent Assets 692 68 150 23 16 Investments 478 5 1 0 1 Fixed Assets 18 52 101 23 15 Intangible Assets 196 3 48 0 - TOTAL ASSETS 39,155 2,008 9,372 2,970 1,753
Banco Consolidated Consolidated Consolidated Interbanco S.A. LIABILITIES AND EQUITY Itaú Europa Itaú Argentina Itaú Chile Itaú Uruguay (Paraguay)
Current and Long-term Liabilities 37,407 1,834 8,062 2,677 1,545 Deposits 6,979 1,523 6,135 2,317 1,429 Deposits Received under Securities Repurchase Agreements - 94 257 - - Funds from Acceptances and Issue of Securities 2,027 - 366 - - Borrowings and On-lendings 916 12 749 6 5 Derivative Financial Instruments 251 1 112 - - Other Liabilities 27,233 205 439 353 112 Technical Provisions for Insurance, Pension Plans and Cap. - - 5 - - Deferred Income 13 - 0 - 0 Minority Interest in Subsidiaries 0 - 0 (0) - Stockholders' Equity 1,735 173 1,309 294 208 TOTAL LIABILITIES AND EQUITY 39,155 2,008 9,372 2,970 1,753
Income Statement R$ million Consolidated Banco Consolidated Consolidated Interbanco S.A. 3rd Quarter/09 Itaú Europa Itaú Argentina Itaú Chile Itaú Uruguay (Paraguay) Financial Margin 26 35 79 11 26 Result from Loan Losses (0) (7) (33) 1 (3) Provision for Loan and Lease Losses (0) (7) (37) (0) (3) Recovery of Credits Written-Off as Losses - 0 4 1 - Net Result from Financial Operations 26 28 45 12 23 Other Operating Income/(Expenses) (8) (30) (26) (18) (6) Banking Service Fees 50 14 15 38 11 Result from Operations of Insurance, Pension Plans and Cap. - - 4 - - Non-interest Expenses (84) (46) (45) (51) (17) Equity in the Earnings of Associated Companies (8) 0 (2) 0 - Other Operating Income 35 1 1 (5) 0 Operating Income 18 (2) 19 (6) 18 Non-operating Income (0) 0 (0) 0 0 Income before Tax and Profit Sharing 18 (1) 18 (6) 18 Income Tax and Social Contribution (2) (4) (5) (1) (2) Profit Sharing (2) 4 - - - Minority Interest in Subsidiaries 0 - (0) 0 - Recurring Net Income 13 (2) 13 (7) 16 Return on Equity – Annualized (%p.y.) 3.1% -4.2% 3.8% -9.2% 31.3% Efficiency Ratio 76.3% 90.5% 45.3% 115.8% 44.2% Non-interest Expenses to total Assets (%p.y.) 0.9%9.1%1.9%6.9%3.8%
Europe (Portugal, London and Luxembourg) Argentina Total assets grew by 51.1% when compared to the prior quarter, The 12.1% decline in total assets was mainly driven by the 10% chiefly due to the higher volume of currency arbitrage depreciation of the Argentine peso against the real. The net loss transactions. Net income for the quarter essentially reflects for the third quarter of 2009 was influenced by the increase in better results in terms of commissions received, lower provisions the provision for doubtful loans and the impacts of the for loan losses, and increased non-interest expenses. During the depreciation of the Argentine currency in the period. quarter, the UBB Luxemburgo S.A. business was merged into Banco Itaú Europa Luxemburgo, with no material impact on the financial statements.
36 Management Discussion and Analysis Itaú Unibanco Holding S.A. Itaú Unibanco Activities Abroad
On June 30, 2009 R$ million Consolidated Banco Consolidated Consolidated Interbanco S.A. ASSETS Itaú Europa Itaú Argentina Itaú Chile Itaú Uruguay (Paraguay) Current and Long-term Assets 25,205 2,223 11,104 3,082 1,838 Cash and Cash Equivalents 1,153 108 451 427 197 Short-term Interbank Deposits 3,848 304 13 447 210 Securities 1,097 306 2,147 473 295 Loans 5,745 1,180 7,997 1,189 795 (Allowance for Loan Losses) (65) (33) (171) (71) (31) Other Credits 13,254 174 364 85 43 Other Assets 174 184 303 532 329 Permanent Assets 703 61 166 24 17 Investments 468 5 1 0 1 Fixed Assets 13 57 116 23 16 Intangible Assets 221 - 49 0 - TOTAL ASSETS 25,908 2,285 11,270 3,106 1,855
Consolidated Banco Consolidated Consolidated Interbanco S.A. LIABILITIES AND EQUITY Itaú Europa Itaú Argentina Itaú Chile Itaú Uruguay (Paraguay) Current and Long-term Liabilities 24,299 2,086 9,853 2,806 1,653 Deposits 7,799 1,558 7,210 2,434 1,514 Deposits Received under Securities Repurchase Agreements - 225 208 - - Funds from Acceptances and Issue of Securities 1,838 - 438 - - Borrowings and On-lendings 1,218 11 1,089 15 4 Derivative Financial Instruments 174 1 437 - - Other Liabilities 13,268 292 467 357 135 Technical Provisions for Insurance, Pension Plans and Cap. - - 4 - - Deferred Income 10 - 0 - 0 Minority Interest in Subsidiaries 0 - 0 (0) - Stockholders' Equity 1,600 199 1,417 300 202 TOTAL LIABILITIES AND EQUITY 25,908 2,285 11,270 3,106 1,855
Income Statement R$ million Consolidated Banco Consolidated Consolidated Interbanco S.A. 2nd Quarter/09 Itaú Europa Itaú Argentina Itaú Chile Itaú Uruguay (Paraguay) Financial Margin 22 40 118 13 26 Result from Loan Losses (7) (1) (38) (1) (1) Provision for Loan and Lease Losses (7) (1) (43) (3) (1) Recovery of Credits Written-Off as Losses - 0 5 2 - Net Result from Financial Operations 14 40 80 12 24 Other Operating Income/(Expenses) (21) (35) (35) (12) (5) Banking Service Fees 32 16 24 31 11 Result from Operations of Insurance, Pension Plans and Cap. - - 5 - - Non-interest Expenses (62) (50) (67) (48) (16) Equity in the Earnings of Associated Companies 13 0 0 0 - Other Operating Income (4) (1) 3 4 0 Operating Income (6) 5 45 (0) 19 Non-operating Income (0) 0 (1) 0 1 Income before Tax and Profit Sharing (6) 5 44 0 20 Income Tax and Social Contribution (10) (1) (6) (3) (2) Profit Sharing (1) (2) - - - Minority Interest in Subsidiaries 0 - (0) (0) - Recurring Net Income (17) 2 38 (3) 19 Return on Equity – Annualized (%p.y.) -4.8% 3.9% 10.1% -4.1% 30.7% Efficiency Ratio 125.2% 90.7% 44.8% 98.6% 44.1% Non-interest Expenses to total Assets (%p.y.) 1.0% 8.7% 2.4% 6.1% 3.5%
Chile Paraguay Total assets decreased by 16.8%, primarily due to the impacts of The 5.4% decrease in total assets at the end of the third quarter the 11.5% depreciation of the Chilean Peso against the Real, as of 2009 was driven by the 6.0% depreciation of the Guarani well as a 0.5% deflation in the quarter. Net income totaled R$13 against the Real. Disregarding the effects of exchange variation, million, as a result of the above impacts on the financial margin, the loan portfolio increased by 1%. banking service fees and costs. Net income for the quarter remained stable compared to the Uruguay prior period. The 4.4% decrease of total assets quarter-on-quarter is mostly attributable to the 8.3% depreciation of the Uruguayan Peso against the U.S. Dollar. Net loss for the third quarter was mainly affected by the above mentioned foreign exchange depreciation.
37 Management Discussion and Analysis Itaú Unibanco Holding S.A.
PricewaterhouseCoopers Av. Francisco Matarazzo, 1700 Torre Torino Caixa Postal 61005 05001-400 São Paulo, SP - Brasil
Report of Independent Auditors on Supplementary Information
To the Board of Directors and Stockholders Itaú Unibanco Holding S.A. (formerly Itaú Unibanco Banco Múltiplo S.A.)
1 In connection with our limited reviews of the financial statements of Itaú Unibanco Holding S.A. (Bank) and Itaú Unibanco Holding S.A. and its subsidiary companies (consolidated) as of the September 30, 2009 and 2008 for the nine-month periods then ended, on which we issued a report without exceptions dated October 30, 2009, we performed a review of the supplementary information included in the Management Discussion and Analysis Report on the Consolidated Operations of Itaú Unibanco Holding S.A. and its subsidiary companies for the third quarter of 2009.
2 Our work was performed in accordance with specific rules set forth by the Institute of Independent Auditors of Brazil (IBRACON), in conjunction with the Federal Accountancy Council, for the purpose of reviewing the accounting information contained in the supplementary information of the Management Discussion and Analysis Report on the Consolidated Operations of Itaú Unibanco Holding S.A. and its subsidiary companies, and mainly comprised: (a) inquiry of, and discussion with, management responsible for the accounting, financial and operational areas of the Bank with regard to the main criteria adopted for the preparation of the accounting information presented in the supplementary information and (b) review of the significant information and of the subsequent events which have, or could have, significant effects on the financial position and the operations of the Bank and its subsidiaries. The supplementary information included in the Management Discussion and Analysis Report on the Consolidated Operations is presented to permit additional analysis. Notwithstanding, this information should not be considered an integral part of the financial statements.
3 On the basis of our review, we are not aware of any material modifications that should be made to the accounting information contained in this supplementary information, in order for it to be adequately presented, in all material respects, in relation to the financial statements at September 30, 2009 and for the nine-month period then ended, taken as a whole.
São Paulo, October 30, 2009
PricewaterhouseCoopers Paulo Sergio Miron Auditores Independentes Contador CRC 1SP173647/O-5 CRC 2SP000160/O-5
Itaú Unibanco Holding S.A.
Complete Financial Statements
September 30, 2009
MANAGEMENT REPORT – January to September 2009
To our Stockholders:
We present the Management Report and the financial statements of Itaú Unibanco Holding S.A. (Itaú Unibanco) and its subsidiaries for the period from January to September 2009, in accordance with the regulations established by the Brazilian Corporate Law, the National Monetary Council (CMN), the Central Bank of Brazil (BACEN), the Brazilian Securities and Exchange Commission (CVM), the Superintendency of Private Insurance (SUSEP), and the National Council of Private Insurance (CNSP).
Significant events
Itaú Unibanco celebrates its 85th anniversary
The merger of Itaú and Unibanco, announced on November 3, 2008, is completing one year. Because of the legacy of both banks, we decided to celebrate 85 years, the earliest date of foundation among the banks that originated the company, as on September 27, 1924 the start-up of the bank section of Casa Moreira Salles in Poços de Caldas, State of Minas Gerais, was authorized; this bank section would later become Unibanco. The activities of Banco Central de Crédito, which later took the name Itaú, started its activities on January 2, 1945.
International Advisory Board
The International Advisory Board, chaired by Pedro Malan, was established with the main objective of contributing to the expansion of the Bank’s presence in the international finance community. Its ten members are important business and academic leaders from several countries, with significant and outstanding experience in the finance world: André Lara Resende, Carlos Ghosn, Jacob Frenkel, Marcel Telles, Pedro Aspe, Pedro Moreira Salles, Raghuram Rajan, Roberto Setubal and Woods Staton. Each year, they will hold semi-annual meetings, one in Brazil and one abroad. The first meeting was held in London, in the beginning of October 2009.
Alliance with Porto Seguro
On August 23, 2009 Itaú Unibanco and Porto Seguro entered into an alliance aimed at the unification of residence and automobile insurance operations. With this transaction, millions of customers of Porto Seguro and Itaú Unibanco now count on the most complete offer in the Brazilian insurance market, especially an extensive network of insurance brokers who will be able to offer a wide range or products and services through the several companies that became part of the group, thus raising their possibilities of choice.
As a result of this alliance, the company will have greater financial soundness and will hold the leading position in the residence and automobile insurance segments, with 3.4 million vehicles and 1.2 million properties insured, strengthening our strategy towards leadership in most of the markets in which we operate. Additionally, the alliance will enable the achievement of economy of scale and synergy of costs, and will expand the geographic presence. For this purpose, an operational agreement was signed for the exclusive offer and distribution of residence and automobile insurance products to the customers of the Itaú Unibanco branch network in Brazil and Uruguay.
All the assets and liabilities related to the current portfolio of residence and automobile insurance of Itaú Unibanco will be transferred to the new company, Itaú Unibanco Seguros de Automóvel e Residência S.A. This company will be managed by Porto Seguro and Itaú Unibanco’s executives and employees who work in these insurance segments will be allocated to the new company, increasing the expertise and quality in insurance management. In its turn, Porto Seguro will issue shares representing 30% of its new capital stock, which will be delivered to Itaú Unibanco.
The completion of the alliance between Itaú Unibanco and Porto Seguro depends on the approval at the stockholders’ meeting and of the Brazilian Antitrust System (SBDC). On October 16, SUSEP granted prior authorization for the corporate acts related to this alliance.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 43 Transfer of Unibanco Saúde Seguradora’s capital to Tempo Participações
Itaú Unibanco and Tempo Participações signed on September 24, 2009 a Memorandum of Understanding aimed at transferring 100% of the capital of Unibanco Saúde Seguradora to Tempo. With this transaction, we aim at increasing the strategic focus of our insurance activities, concentrating our operations in the segments in which we hold leading positions. Tempo will pay to Itaú Seguros the amount of R$ 55 million on the stock transfer date. The signed memorandum also provides that, in view of the future performance of Unibanco Saúde Seguradora, Itaú Unibanco shall be entitled to an additional payment of up to R$ 45 million.
In the coming 90 days, Tempo and Itaú Seguros will sign a definitive documentation detailing the rules outlined in the Memorandum of Understanding. The conclusion of this agreement will depend on the approval of the bodies in charge, including the ANS (Brazilian Health Agency – the health market regulator) and SBDC.
Amendment to the FIC joint-venture agreement
Companhia Brasileira de Distribuição (CBD) and Itaú Unibanco concluded on August 28 the negotiation related to the company Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento (FIC). The agreement which created FIC was amended, in order to exclude the obligation of exclusivity of Itaú Unibanco. In consideration, Itaú Unibanco paid to Grupo Pão de Açúcar the amount of R$ 550 million. On the same occasion, the exclusivity for the offer of financial products and services granted by CBD to FIC was extended to an additional term of five years, reason why Itaú Unibanco paid R$ 50 million to Grupo Pão de Açúcar.
ITAÚ UNIBANCO
We present the main results for the period from January to September 2009. Considering the merger that created Itaú Unibanco at the end of 2008 and aiming at providing a better understanding of the changes in assets, liabilities and results from the new institution, for the effect of comparability, the data related to the period from January to September 2008 takes into consideration the addition of Itaú and Unibanco figures.
The information of Itaú Unibanco Pro Forma presented below for the period from January to September of 2009 does not represent what could have happened if the merger of shares had happened previously, nor corresponds to the financial statements of Itaú Unibanco, nor is indicative of future results.
Jan to Jan to Sept/08 Change 3rd 2nd Change Sep/09 (%) quarter/09 quarter/09 (%) PRO FORMA Income - R$ million (1) Gross income from financial operations 35,188 24,777 42.0% 11,868 12,710 -6.6% Expense for allowance for loan losses (12,383) (7,855) 57.6% (4,296) (4,252) 1.1% Income from recovery of credits written off as loss 1,440 1,108 30.0% 569 461 23.5% Income from services and income from insurance, pension plan and capitalization 12,717 11,869 7.1% 4,453 4,237 5.1% Personnel, administrative and other operating expenses (18,802) (17,209) 9.3% (6,211) (6,311) -1.6% Recurring net income 7,677 8,232 -6.7% 2,687 2,429 10.6% Net income 6,854 8,133 -15.7% 2,268 2,571 -11.8% Results per share - R$ Recurring net income (2) 1.70 1.83 -6.9% 0.60 0.54 10.6% Net income (2) 1.52 1.80 -15.9% 0.50 0.57 -11.8% Book value 10.80 9.88 9.4% 10.80 10.46 3.2% Dividends and Interest on Capital (net of taxes) 0.53 0.56 -4.1% 0.20 0.16 25.6% Price per preferred share (PN) (3) 35.60 27.74 28.4% 35.60 28.34 25.6% Market capitalization - R$ million (3) 161,046 113,738 41.6% 161,046 128,034 25.8% Balance sheet - R$ million Total assets 612,399 577,166 6.1% 612,399 596,387 2.7% Total loans (including endorsements and sureties) 268,693 254,766 5.5% 268,693 265,966 1.0% Free, raised and managed own assets 832,641 766,308 8.7% 832,641 814,822 2.2% Subordinated debt 22,773 20,134 13.1% 22,773 22,498 1.2% Stockholders' equity 48,862 44,510 9.8% 48,862 47,269 3.4% Referential Equity (Economic-financial consolidated) 68,624 60,170 14.1% 68,624 67,605 1.5% Financial ratios (%) Annualized recurring return on average equity 22.2% 25.9% 22.4% 21.1% Annualized return on average equity 19.8% 25.5% 18.9% 22.3% Annualized return on average assets 1.5% 2.1% 1.5% 1.7% Efficiency ratio (4) 42.0% 44.5% 41.1% 42.7% Basel Ratio (Economic-financial consolidated) 16.3% 14.9% 16.3% 16.5% Fixed assets ratio (Economic-financial consolidated) 14.8% 16.7% 14.8% 14.6% (1) Excludes the non-recurring effects of each period, as disclosed in Note 22l. (2) For the 2009 periods, computed based on the weighted average of the number of shares, and in September 2008, computed based on the number of shares in December 2008 (4,506 million). (3) Calculated based on the average quotation of preferred shares on the last day of the period. (4) Calculated based on international criteria defined in the Management's Discussion & Analysis Report.
The complete financial statements and the Management’s Discussion & Analysis Report of Itaú Unibanco, which present further details on the results for the period, are available on the Itaú Unibanco website (www.itau- unibanco.com/ir).
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 44 Business performance
The process of integration of Unibanco branches into Itaú’s platform started in August 2009. The pilot project involved four branches and one service center. We expect to complete this process until the end of 2010. In the third quarter, we offered to employees training aimed at integrating Itaú and Unibanco operations that was mainly focused on the following areas: Companies, Individuals, Wealth Management Services; Operational Risk and Efficiency, and Audit. A total of 3,705 employees participated and 65,590 training hours were provided.
In the first nine months of 2009, the customers of Itaú Unibanco started to count on an even more intricate service structure all over the country, and with new options of easier access to credit and financial services, as a result of the unification and integration of the best in Itaú and Unibanco. Behind the expansion of the service structure, there are also deep changes in progress, with the adoption of the best management and business practices and the integration of talents from both institutions.
The main indicators of Itaú Unibanco for this period are as follows.
Consolidated assets totaled R$ 612,399 million at September 30, 2009, the highest among the financial private groups of Latin America.
Net income for the first nine months of 2009 totaled R$ 6,854 million, with annualized return of 19.8% on average equity (25.5% for the same period of 2008). Recurring net income was R$ 7,677 million, with annualized return of 22.2%. Itaú Unibanco paid or provided for its own taxes and contributions for the period in the amount of R$ 11,456 million. The Bank also withheld and passed on taxes, which were directly levied on financial operations, in the amount of R$ 5,695 million.
Consolidated stockholders’ equity totaled R$ 48,862 million at the end of September. The loan portfolio, including endorsements and sureties, reached R$ 268,693 million, an increase of 5.5% as compared to September 30, 2008. In Brazil, non-mandatory loans to the individuals segment reached R$ 98,383 million, a growth of 6.3% as compared to the same period of 2008. The large company segment, in its turn, reached R$ 90,299 million, whereas the very small, small and middle-market company segment reached R$ 56,709 million, an 18.1% increase as compared to September 2008. Free, raised and managed own assets totaled R$ 832,641 million, an increase of 8.7%. Basel ratio stood at 16.3% at the end of September, based on the economic- financial consolidated.
Itaú Unibanco’s preferred shares rose 48.6%, as compared to the quotation of December 31, 2008. The market value at Stock Exchanges was R$ 161,046 million at the end of September, which ranked Itaú Unibanco 11th in the global bank ranking at September 30.
In the credit card segment, Itaú Unibanco holds the leading position in terms of billing, thus reflecting the growth of both institutions in this market in the last years. With the union of the Itaucard, Unicard and Hipercard businesses, the individual credit card portfolio reached in Brazil R$ 25,215 million at the end of September.
At September 30, the balance of the individual vehicle portfolio of Itaú Unibanco in Brazil reached R$ 50,670 million. In the real estate market, Itaú Unibanco’s loan portfolio totaled R$ 7,832 million.
Insurance, pension plan and capitalization operations reached R$ 13,679 million in premiums earned in the period from January to September. Technical provisions for insurance, pension plan and capitalization totaled R$ 49,978 million at the end of September. Itaú Unibanco reached the landmark of R$ 40 billion in total pension plan reserves, taking into account the plans for individuals and companies.
In the investment banking area, Itaú BBA took part in operations of debentures and promissory notes that totaled R$ 13.3 billion and of securitization that totaled R$ 780 million in the period from January to September 2009. These operations assured the leadership in the Anbid ranking regarding the distribution of fixed income in the period from January to September 2009. In capital markets, it coordinated public offerings of stocks that totaled R$ 5.3 billion. In the Anbid ranking regarding origination of variable income, it was ranked fourth in the period from January to September 2009, with a market share of 12.1%.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 45
People
Itaú Unibanco among the best companies to work
Itaú Unibanco is currently in the list of the best companies to work of the Great Place to Work Institute (in partnership with the Época magazine), with a satisfaction rate of 77%; and of FIA/USP (in partnership with the Exame/Você SA magazine), with a satisfaction rate of 78%. This achievement was obtained after these two survey institutes examined the response of approximately 4,000 employees. They responded to questions on aspects concerning the organizational climate, such as recognition, leadership and communication. These institutions have also evaluated the Human Resources practices and conducted interviews with groups of employees. In the work carried out by the Great Place to Work Institute, the bank stood out in items that evaluated companies which were considered the “Most Wanted” (ranked first), the “Companies that hire the most” (ranked second), and those who have “More women” in their staff (ranked 16th).
At the end of September 2009, Itaú Unibanco employed approximately 103,000 employees. The employees’ fixed compensation plus charges and benefits totaled R$ 6,257 million in the period from January to September 2009. Additionally, approximately R$ 79 million were invested in education, training and development programs.
Ratings and awards
In the third quarter of 2009, Itaú Unibanco's operations were recognized by renowned communication vehicles and institutions:
It was recognized by Euromoney magazine as the best bank in Brazil for the 11th time. The corporate and investment banking segment of Itaú BBA was chosen as the best investment bank in the Brazilian capital markets; It was awarded as the best bank in investment fund management by the Guia Exame de Investimentos Pessoais; It was awarded the Outstanding Private Bank – Latin American, granted by Private Banker International (PBI) magazine. This is the second consecutive time that Itaú Unibanco receives its award, considered the most important in the fortune management segment in the world; Itaú Unibanco is the leader in its sector in Brazil and Latin America, as evaluated by the British magazine The Banker, considered a benchmark for financial managers in the whole world; Itaú Unibanco was ranked first in the “The 40 largest banks of Latin America in sustainability” for the fifth consecutive time. The study is carried out by the consulting company Management & Excellence in partnership with the Latin Finance magazine; Itaú Unibanco’s Chief Executive Officer, Mr. Roberto Setubal, was bestowed honor for being considered one of the most successful businessmen in 2009 by Banco Hoje magazine; and The vice-president in charge of the Wealth Management Services area, Mr. Alfredo Setubal, was acknowledged as a distinguished administrator by the Regional Administration Council of São Paulo (CRA- SP).
Sustainability and corporate social responsibility
For the tenth consecutive year, Itaú Unibanco was selected to be in the list comprising 317 companies of 26 countries that make up the Dow Jones Sustainability World Index (DJSI). Itaú Unibanco is the only financial institution in Latin America to be included in this index since it was created in 1999. Of the seven Brazilian companies selected for the 2009/2010 review, three are of the Group: Itaúsa, Itaú Unibanco, and Redecard.
On September 28, 2009 the Fundo Itaú Índice de Carbono (carbon index fund), the first in the country linked to carbon credits index, was launched. Its return will be based on the Barclays Capital Global Carbon Index Excess Return Euro (BGCI), a world index that monitors the performance of carbon credits traded in the Emissions Trade Scheme (ETS) of the European Union and the Clean Development Mechanism (MDL).
Itaú Unibanco and the MIT Sloan School of Management entered into a partnership to hold discussions on sustainability in Brazil and Latin America. The Bank will invest US$ 500,000 in the research and development of projects related to sustainability and in the organization of workshops at MIT and in Brazil.
For the second consecutive year, Itaú Unibanco was conferred honor as “Leading Company” at the Prêmio Época de Mudanças Climáticas (Época climate changes award) ceremony, which acknowledges companies that take concrete actions against global warming.
Social and cultural investments
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 46
In the period from January to September 2009, social and cultural investments of Itaú Unibanco totaled R$ 129 million.
In 2009, the Programa de Voluntários Itaú Unibanco (volunteers program) launched the Sábado Voluntário (volunteering Saturday) event, with the objective of showing appreciation and organizing employees who already work as volunteers as well as those who have never provided a social service in a context of a joint action. Additionally, a Semana Voluntária (volunteering week) was held in the CEIC, CAT, CTO, and CAU administrative centers, with the objective of encouraging volunteering by employees.
Instituto Unibanco mobilized 35 thousand students, parents and teachers to carry out improvements in 42 schools in São Paulo. In 2009, in addition to the 48 schools already benefited in Belo Horizonte, Porto Alegre, and São Paulo, the amount of R$ 5.4 million was provided to improve the quality of education in 45 new public schools, thus benefiting 50 thousand students.
Instituto Itaú Cultural carried out 314 events in Brazil and 101 in a number of countries between January and September 2009. The Institution was visited by 204 thousand people in the third quarter of the year and its website was accessed by an average of 825 thousand users per month. The institution distributed 27 thousand products, among books, catalogs, CDs, and DVDs. Itaú Cultural was chosen as one of the 100 best companies to work by the Great Place to Work Institute, which conducted the survey engaged by Época magazine. It is important to remember that Instituto Itaú Cultural undertake its activities in partnership with the Ministry of Culture through the Rouanet Law, according to which a portion of funds are provided as incentive.
Independent Auditors – CVM Instruction No. 381
. Procedures adopted by the Company
The policy adopted by Itaú Unibanco, its subsidiaries and parent company, to engage non-audit related services from our independent auditors is based on the applicable regulations and internationally accepted principles that preserve the auditor’s independence. These principles include the following: (a) an auditor cannot audit his or her own work, (b) an auditor cannot function in the role of management in companies where he or she provides external audit services; and (c) an auditor cannot promote the interests of its client.
During the period from January to September 2009, the independent auditors and related parties did not provide non-audit related services in excess of 5% of total external audit fees.
According to CVM Instruction No. 381, we list below the engaged services and related dates:
February 17, 2009 – Agreement for using an electronic library of international accounting standards – (Comperio) - Itaú Unibanco – Brazil; and February 26, 2009 – Consulting and advisory services agreement in order to resolve specific issues involving tax, accounting and corporate law – Itaú Unibanco S.A.– Brazil; and July 14, 2009 – Participation in the salary compensation survey named “Encuestas de remuneraciones y Benefícios adicionales” (additional compensation and benefits surveys) – Oca S.A. Uruguay.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 47
. Summary of the Independent Auditors’ justification - PricewaterhouseCoopers
The provision of the above described non-audit related professional services do not affect the independence or the objectivity of the external audit of Itaú Unibanco, parent and its subsidiary/affiliated companies. The policy adopted for providing non-audit related services to Itaú Unibanco is based on principles that preserve the independence of Independent Auditors, all of which were considered in the provision of the referred services.
Circular No. 3,068/01 of BACEN
Itaú Unibanco hereby represents to have the financial capacity and the intention to hold to maturity securities classified under the line “held-to-maturity securities” in the balance sheet, in the amount of R$ 2,859 million, corresponding to only 2.3% of total securities held.
Acknowledgements
We thank our employees for their efforts and skills which have been essential to reach consistent and differentiated results, and our stockholders and clients for the trust they put on us.
(Approved at the Board of Directors' Meeting of October 30, 2009).
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 48 ITAÚ UNIBANCO HOLDING S.A.
BOARD OF DIRECTORS EXECUTIVE BOARD Chairman Chief Executive Officer PEDRO MOREIRA SALLES ROBERTO EGYDIO SETUBAL
Vice-Chairmen Executive Vice-Presidents ALFREDO EGYDIO ARRUDA VILLELA FILHO ALFREDO EGYDIO SETUBAL (*) ROBERTO EGYDIO SETUBAL CANDIDO BOTELHO BRACHER
Members Executive Directors ALCIDES LOPES TÁPIAS ANTONIO CARLOS BARBOSA DE OLIVEIRA ALFREDO EGYDIO SETUBAL CLAUDIA POLITANSKI CANDIDO BOTELHO BRACHER MARCOS DE BARROS LISBOA FERNANDO ROBERTO MOREIRA SALLES RICARDO BALDIN FRANCISCO EDUARDO DE ALMEIDA PINTO RODOLFO HENRIQUE FISCHER GUILLERMO ALEJANDRO CORTINA SÉRGIO RIBEIRO DA COSTA WERLANG GUSTAVO JORGE LABOISSIERE LOYOLA SILVIO APARECIDO DE CARVALHO HENRI PENCHAS ISRAEL VAINBOIM Directors PEDRO LUIZ BODIN DE MORAES CARLOS ELDER MACIEL DE AQUINO RICARDO VILLELA MARINO JACKSON RICARDO GOMES JOSÉ EDUARDO LIMA DE PAULA ARAUJO LUIZ FELIPE PINHEIRO DE ANDRADE AUDIT COMMITTEE MARCO ANTONIO ANTUNES President WAGNER ROBERTO PUGLIESE GUSTAVO JORGE LABOISSIERE LOYOLA
Members (*) Investor Relations Officer ALCIDES LOPES TÁPIAS EDUARDO AUGUSTO DE ALMEIDA GUIMARÃES GUY ALMEIDA ANDRADE TEREZA CRISTINA GROSSI TOGNI
FISCAL COUNCIL President IRAN SIQUEIRA LIMA
Members Accountant ALBERTO SOZIN FURUGUEM JOSÉ MANUEL DA COSTA GOMES ARTEMIO BERTHOLINI CRC - 1SP219892/O-0
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 49
ITAÚ UNIBANCO S.A.
Chief Executive Officer and General Manager Directors (Continued) ROBERTO EGYDIO SETUBAL HELI DE ANDRADE JACKSON RICARDO GOMES Executive Vice-Presidents JASON PETER CRAUFORD (*) ALFREDO EGYDIO SETUBAL JEAN MARTIN SIGRIST JÚNIOR ANTONIO CARLOS BARBOSA DE OLIVEIRA JOÃO ANTONIO DANTAS BEZERRA LEITE GERALDO JOSÉ CARBONE JORGE LUIZ VIEGAS RAMALHO (*) JOSÉ CASTRO ARAÚJO RUDGE LAVÍNIA MORAES DE ALMEIDA NOGUEIRA JUNQUERA (*) MÁRCIO DE ANDRADE SCHETTINI LEILA CRISTIANE BARBOZA BRAGA DE MELO (*) MARCO AMBROGIO CRESPI BONOMI LINDA AGARINAKAMURA RODOLFO HENRIQUE FISCHER LUÍS ANTONIO RODRIGUES RUY VILLELA MORAES ABREU LUÍS EDUARDO GROSS SIQUEIRA CUNHA SÉRGIO RIBEIRO DA COSTA WERLANG LUÍS OTÁVIO MATIAS LUIS TADEU MANTOVANI SASSI (*) Executive Directors LUIZ ANTONIO FERNANDES CALDAS MORONE ALEXANDRE DE BARROS LUIZ ANTONIO NOGUEIRA DE FRANÇA CELSO SCARAMUZZA LUIZ EDUARDO LOUREIRO VELOSO (*) CLAUDIA POLITANSKI (*) LUIZ FELIPE PINHEIRO DE ANDRADE (*) DEMOSTHENES MADUREIRA DE PINHO NETO LUIZ FERNANDO OLIVEIRA BARRICHELO FERNANDO MARSELLA CHACON RUIZ LUIZ MARCELO ALVES DE MORAES IVO LUIZ DE SÁ FREIRE VIEITAS JUNIOR (*) MANOEL ANTONIO GRANADO JOÃO JACÓ HAZARABEDIAN MARCELO BOOCK JOSÉ ROBERTO HAYM (*) MARCELO HABICE DA MOTTA MARCOS DE BARROS LISBOA MARCELO LUIS ORTICELLI (*) OSVALDO DO NASCIMENTO MARCELO TONHAZOLO (*) RICARDO BALDIN (*) MARCELO VILLAÇA MACEDO CARVALHO RICARDO VILLELA MARINO MARCO ANTONIO ANTUNES SILVIO APARECIDO DE CARVALHO MARCO ANTONIO SUDANO MARCOS ANTÔNIO VAZ DE MAGALHÃES (*) Directors MARCOS AUGUSTO CAETANO DA SILVA FILHO (*) ADRIANO BRITO DA COSTA LIMA MARCOS AURÉLIO REITANO ALMIR VIGNOTO MARCOS BRAGA DAINESI (*) ANDRÉ SAPOZNIK (*) MARCOS ROBERTO CARNIELLI ANDRÉA MATTEUCCI PINOTTI CORDEIRO MARCOS SILVA MASSUKADO (*) ANTONIO CARLOS RICHECKI RIBEIRO MARCOS VANDERLEI BELINI FERREIRA (*) ANTONIO CARLOS AZZI JÚNIOR MAURÍCIO FERREIRA DE SOUZA (*) ANTONIO SIVALDI ROBERTI FILHO MÁXIMO HERNÁNDEZ GONZÁLEZ ARNALDO PEREIRA PINTO MIGUEL BURGOS NETO AURÉLIO JOSÉ DA SILVA PORTELLA NATALÍSIO DE ALMEIDA JÚNIOR CARLOS ALBERTO BEZERRA DE MOURA (*) OLIVIO MORI JÚNIOR CARLOS AUGUSTO DE OLIVEIRA (*) OSMAR MARCHINI CARLOS EDUARDO DE CASTRO (*) OSVALDO JOSÉ DAL FABBRO CARLOS EDUARDO DE SOUZA LARA PAULO EIKIEVICIUS CORCHAKI CARLOS EDUARDO MONICO PAULO MEIRELLES DE OLIVEIRA SANTOS (*) CARLOS HENRIQUE DONEGÁ AIDAR PAULO PIRES VAZ (**) CARLOS HENRIQUE ZANVETTOR (*) PEDRO PAULO DE ALMEIDA CARNEIRO CUNHA (*) CECÍLIA MARIA ARELLANO MISZPUTEN (*) PLÍNIO CARDOSO DA COSTA PATRÃO (*) CESAR PADOVAN RENÊ MARCELO GONÇALVES (*) CÍCERO MARCUS DE ARAÚJO RENATA HELENA DE OLIVEIRA TUBINI CLÁUDIO CESAR SANCHES (*) RICARDO LIMA SOARES CLAUDIO CORACINI RICARDO ORLANDO CLAUDIO JOSÉ COUTINHO ARROMATTE (*) RICARDO RIBEIRO MANDACARU GUERRA COSMO FALCO RICARDO TERENZI NEUENSCHWANDER CRISTIANE MAGALHÃES TEIXEIRA PORTELLA ROBERTO LAMY (*) EDUARDO ALMEIDA PRADO ROBERT MACKELLAR RITCHIE ELISABETE SZABO (*) ROGERIO CARVALHO BRAGA (*) ERNESTO ANTUNES DE CARVALHO ROGÉRIO PAULO CALDERÓN PERES (*) FABIO WHITAKER VIDIGAL ROMILDO GONÇALVES VALENTE (*) FERNANDO DELLA TORRE CHAGAS ROONEY SILVA FERNANDO JOSÉ COSTA TELES SANDRA NUNES DA CUNHA BOTEGUIM FLÁVIO AUGUSTO AGUIAR DE SOUZA SERGIO SOUZA FERNANDES JÚNIOR (*) GILBERTO TRAZZI CANTERAS (**) (*) Elected at the E/ASM of 04/30/09 - Awaiting BACEN's approval. (**) Elected at the ESM of 09/30/09 - Awaiting BACEN's approval.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 50 BANCO ITAÚ BBA S.A.
BOARD OF DIRECTORS Directors ADRIANO LIMA BORGES (**) Chairman ALBERTO ZOFFMANN DO ESPÍRITO SANTO ROBERTO EGYDIO SETUBAL ALEXANDRE ENRICO SILVA FIGLIOLINO ANDRÉ FERRARI (*) Vice-Chairmen ANDRÉ LUIZ HELMEISTER FERNÃO CARLOS BOTELHO BRACHER ANTONIO JOSÉ CALHEIROS RIBEIRO FERREIRA PEDRO MOREIRA SALLES (*) EDUARDO CARDOSO ARMONIA (*) EDUARDO CORSETTI (*) Members ELAINE CRISTINA ZANATTA RODRIGUES VASQUINHO ALFREDO EGYDIO SETUBAL EMERSON SAVI JUNQUEIRA ANTONIO BELTRAN MARTINEZ FÁBIO DE SOUZA QUEIROZ FERRAZ CANDIDO BOTELHO BRACHER FABIO MASSASHI OKUMURA EDUARDO MAZZILLI DE VASSIMON FERNANDO FONTES IUNES HENRI PENCHAS FRANCISCO DE ASSIS CREMA JOÃO DIONÍSIO FILGUEIRA BARRETO AMOÊDO GILBERTO FRUSSA SÉRGIO RIBEIRO DA COSTA WERLANG GUSTAVO HENRIQUE PENHA TAVARES GUILHERME DE ALENCAR AMADO (*) EXECUTIVE BOARD ILAN GOLDFAJN (*) JOÃO CARLOS DE GÊNOVA Chief Executive Officer JOÃO MARCOS PEQUENO DE BIASE CANDIDO BOTELHO BRACHER JOSÉ AUGUSTO DURAND JOSÉ IRINEU NUNES BRAGA Managing Vice-Presidents LILIAN SALA PULZATTO KIEFER ALBERTO FERNANDES LUÍS ALBERTO PIMENTA GARCIA ANTONIO CARLOS BARBOSA DE OLIVEIRA LUIZ MARCELO ALVES DE MORAES (*) DANIEL LUIZ GLEIZER MARCELO MAZIERO JEAN-MARC ROBERT NOGUEIRA BAPTISTA ETLIN MARCO ANTONIO SUDANO (*) RODOLFO HENRIQUE FISCHER (*) MARIO ANTONIO BERTONCINI (*) MÁRIO LÚCIO GURGEL PIRES Executive Directors MÁRIO LUÍS BRUGNETTI ALEXANDRE JADALLAH AOUDE MARIO LUIZ AMABILE ANDRÉ EMILIO KOK NETO MILTON MALUHY FILHO ANDRÉ LUIS TEIXEIRA RODRIGUES PASCHOAL PIPOLO BAPTISTA CAIO IBRAHIM DAVID PAULO DE PAULA ABREU NICOLAU FERREIRA CHACUR (*) PAULO ROMAGNOLI PAOLO SERGIO PELLEGRINI PAULO PIRES VAZ (*) PAULO ROMAGNOLI PAULO ROBERTO SCHIAVON DE ANDRADE (*) PEDRO REZENDE MARINHO NUNES RODRIGO PASTOR FACEIRO LIMA
(*) Elected at 04/30/2009 - Awaiting BACEN's approval.
(**) Elected at 08/03/2009 - Awaiting BACEN's approval.
BANCO ITAUCRED FINANCIAMENTOS S.A. ITAÚ SEGUROS S.A.
Chief Executive Officer Chief Executive Officer MARCO AMBROGIO CRESPI BONOMI ROBERTO EGYDIO SETUBAL
Executive Vice-President Superintendent Director MÁRCIO DE ANDRADE SCHETTINI JOSÉ CASTRO ARAÚJO RUDGE
Directors Executive Directors ADRIENNE PATRICE GUEDES DAIBERT ANDRÉ HORTA RUTOWITSCH CARLOS HENRIQUE ZANVETTOR ANTONIO EDUARDO MÁRQUEZ DE FIGUEIREDO TRINDADE CLÁUDIO JOSÉ COUTINHO ARROMATTE NEY FERRAZ DIAS EVANIR COUTINHO USSIER FERNANDO JOSÉ COSTA TELES Managing Directors FLÁVIO KITAHARA SOUSA LUIZ FERNANDO BUTORI REIS SANTOS (*) JACKSON RICARDO GOMES MARCO ANTONIO ANTUNES JASON PETER CRAUFORD MARCOS DE BARROS LISBOA LUÍS FERNANDO STAUB MOACYR ROBERTO FARTO CASTANHO LUÍS OTÁVIO MATIAS NORBERTO GIL FERREIRA CAMARGO LUIZ FELIPE PINHEIRO DE ANDRADE LUIZ HENRIQUE DIDIER JÚNIOR (*) Elected at 10/13/2009 - Awaiting SUSEP's approval. LUIZ OTAVIO PINHO DO AMARAL MARCO ANTONIO ANTUNES MARCOS VANDERLEI BELINI FERREIRA ROBERTO LAMY RODOLFO HENRIQUE FISCHER
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 51 ITAÚ UNIBANCO HOLDING S.A. Consolidated Balance Sheet (Note 2a) (In thousands of Reais)
ASSETS 09/30/2009 09/30/2008
CURRENT ASSETS 460,563,720 311,997,832 CASH AND CASH EQUIVALENTS 10,325,257 6,020,651 INTERBANK INVESTMENTS (Notes 4b and 6) 133,856,473 84,592,614 Money market 117,443,167 73,879,934 Money market – Assets Guaranteeing Technical Provisions – SUSEP (Note 11b) 666,155 87,435 Interbank deposits 15,747,151 10,625,245 SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (Notes 4c, 4d and 7) 96,521,784 69,540,516 Own portfolio 29,792,900 21,256,768 Subject to repurchase commitments 6,516,093 1,875,499 Pledged in guarantee 8,097,453 7,237,246 Deposited with the Central Bank 5,271,926 7,715,674 Derivative financial instruments 6,580,080 5,931,113 Assets guaranteeing technical provisions – PGBL/VGBL fund quotas (Note 11b) 36,403,697 21,893,675 Assets guaranteeing technical provisions – other securities (Note 11b) 3,859,635 3,630,541 INTERBANK ACCOUNTS 16,955,733 20,255,296 Pending settlement 3,413,787 2,213,084 Central Bank deposits 13,383,914 17,997,480 National Housing System (SFH) 70,260 23,469 Correspondents 82,505 9,451 Interbank onlending 5,267 11,812 INTERBRANCH ACCOUNTS 50,926 4,559 LOAN, LEASE AND OTHER CREDIT OPERATIONS (Note 8) 137,121,238 91,435,523 Operations with credit granting characteristics (Note 4e) 151,641,187 96,584,174 (Allowance for loan losses) (Note 4f) (14,519,949) (5,148,651) OTHER RECEIVABLES 62,655,037 37,396,250 Foreign exchange portfolio (Note 9) 33,368,298 22,469,187 Income receivable 651,284 785,802 Transactions with credit card issuers (Note 4e) 7,918,689 1,774,225 Receivables from insurance and reinsurance operations (Note 4ml and 11b) 3,317,136 1,373,577 Negotiation and intermediation of securities 2,447,821 1,783,892 Sundry (Note 13a) 14,951,809 9,209,567 OTHER ASSETS (Note 4g) 3,077,272 2,752,423 Assets held for sale 407,275 327,569 (Valuation allowance) (104,852) (52,097) Unearned premiums of reinsurance (Note 4ml) 645,531 207,156 Prepaid expenses (Note 13b) 2,129,318 2,269,795
LONG-TERM RECEIVABLES 141,876,364 79,969,125 INTERBANK INVESTMENTS (Notes 4b and 6) 4,107,734 1,898,786 Money market 1,101,257 402,861 Money market – Assets Guaranteeing Technical Provisions – SUSEP (Note 11b) 2,156,948 716,972 Interbank deposits 849,529 778,953 SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (Notes 4c, 4d and 7) 26,054,528 12,066,313 Own portfolio 11,373,391 8,080,470 Subject to repurchase commitments 2,210,081 454,396 Pledged in guarantee 1,959,772 1,401,667 Deposited with the Central Bank 4,197,841 259,364 Derivative financial instruments 1,904,502 1,141,918 Assets guaranteeing technical provisions – other securities (Note 11b) 4,408,941 728,498 INTERBANK ACCOUNTS - National Housing System (SFH) 474,568 568,560 LOAN, LEASE AND OTHER CREDIT OPERATIONS (Note 8) 75,909,821 50,790,327 Operations with credit granting characteristics (Note 4e) 85,458,145 54,430,674 (Allowance for loan losses) (Note 4f) (9,548,324) (3,640,347) OTHER RECEIVABLES 33,782,734 14,574,351 Foreign exchange portfolio (Note 9) 2,354,347 1,798,989 Sundry (Note 13a) 31,428,387 12,775,362 OTHER ASSETS – Prepaid expenses (Notes 4g and 13b) 1,546,979 70,788
PERMANENT ASSETS 9,958,850 6,679,125 INVESTMENTS (Notes 4h and 15a II) 2,283,674 1,415,788 Investments in affiliates 1,364,672 1,168,343 Other investments 1,091,652 347,039 (Allowance for loan losses) (172,650) (99,594) FIXED ASSETS (Notes 4i and 15b) 4,072,414 2,436,990 Real estate in use 4,373,680 2,911,070 Other fixed assets 6,535,196 3,736,312 (Accumulated depreciation) (6,836,462) (4,210,392) OPERATING LEASE ASSETS (Note 4j) 15,231 10,063 Leased assets 32,794 18,553 (Accumulated depreciation) (17,563) (8,490) INTANGIBLE (Notes 4k and 15b) 3,587,531 2,816,284 Acquisition of rights to credit payroll 2,588,114 1,971,841 Intangible assets 2,291,588 1,127,236 (Accumulated amortization) (1,292,171) (282,793) TOTAL ASSETS 612,398,934 398,646,082
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 52 ITAÚ UNIBANCO HOLDING S.A. Consolidated Balance Sheet (Note 2a) (In thousands of Reais)
LIABILITIES 09/30/2009 09/30/2008
CURRENT LIABILITIES 329,393,311 227,795,756 DEPOSITS (Notes 4b and 10b) 114,758,316 79,269,360 Demand deposits 22,707,717 19,018,447 Savings deposits 44,146,423 29,925,490 Interbank deposits 2,017,954 2,105,190 Time deposits 44,851,975 27,278,365 Other deposits 1,034,247 941,868 DEPOSITS RECEIVED UNDER SECURITIES REPURCHASE AGREEMENTS (Notes 4b and 10c) 86,178,324 72,838,504 Own portfolio 32,371,661 22,347,912 Third-party portfolio 53,635,480 49,782,599 Free portfolio 171,183 707,993 FUNDS FROM ACCEPTANCE AND ISSUANCE OF SECURITIES (Notes 4b and 10d) 10,970,048 4,912,524 Real estate, mortgage, credit and similar notes 8,298,962 2,731,181 Debentures 156,775 124,667 Foreign borrowings through securities 2,514,311 2,056,676 INTERBANK ACCOUNTS 4,049,463 2,872,853 Pending settlements 2,991,610 1,871,881 Correspondents 1,057,853 1,000,972 INTERBRANCH ACCOUNTS 2,999,373 1,963,428 Third-party funds in transit 2,848,971 1,961,468 Internal transfers of funds 150,402 1,960 BORROWINGS AND ONLENDING (Notes 4b and 10e) 14,465,005 12,045,559 Borrowings 8,492,236 9,940,759 Onlending 5,972,769 2,104,800 DERIVATIVE FINANCIAL INSTRUMENTS (Notes 4d and 7h) 5,562,134 4,049,622 TECHNICAL PROVISIONS FOR INSURANCE, PENSION PLAN AND CAPITALIZATION (Notes 4m II and 11a) 8,803,153 3,514,471 OTHER LIABILITIES 81,607,495 46,329,435 Collection and payment of taxes and contributions 3,377,497 3,089,022 Foreign exchange portfolio (Note 9) 34,376,024 22,124,699 Social and statutory (Note 16b II) 2,639,059 1,881,031 Tax and social security contributions (Notes 4n, 4o and 14c) 6,789,042 2,610,105 Negotiation and intermediation of securities 1,569,977 2,068,387 Credit card operations (Note 4e) 21,045,977 9,318,978 Securitization of foreign payment orders (Note 10a) - 188,185 Subordinated debt (Note 10f) 1,174,634 38,357 Sundry (Note 13c) 10,635,285 5,010,671
LONG-TERM LIABILITIES 230,469,394 136,797,661 DEPOSITS (Notes 4b and 10b) 74,331,076 33,808,754 Interbank deposits 213,737 239,873 Time deposits 74,117,339 33,568,881 DEPOSITS RECEIVED UNDER SECURITIES REPURCHASE AGREEMENTS (Notes 4b and 10c) 40,486,132 32,964,986 Own portfolio 36,499,025 32,964,364 Third-party portfolio 340 622 Free portfolio 3,986,767 - FUNDS FROM ACCEPTANCE AND ISSUANCE OF SECURITIES (Notes 4b and 10d) 7,567,557 5,669,996 Real estate, mortgage, credit and similar notes 875,639 541,110 Debentures 2,731,931 2,025,000 Foreign borrowings through securities 3,959,987 3,103,886 BORROWINGS AND ONLENDING (Notes 4b and 10e) 18,343,079 8,762,265 Borrowings 3,654,410 3,859,627 Onlending 14,688,669 4,902,638 DERIVATIVE FINANCIAL INSTRUMENTS (Notes 4d and 7h) 1,896,269 1,044,048 TECHNICAL PROVISIONS FOR INSURANCE, PENSION PLAN AND CAPITALIZATION (Notes 4m II and 11a) 41,174,501 24,613,751 OTHER LIABILITIES 46,670,780 29,933,861 Foreign exchange portfolio (Note 9) 2,345,964 1,824,311 Tax and social security contributions (Notes 4n, 4o and 14c) 16,667,342 11,478,376 Credit card operations (Note 4e) 12,345 - Securitization of foreign payment orders (Note 10a) - 1,265,132 Subordinated debt (Note 10f) 21,597,977 12,469,164 Sundry (Note 13c) 6,047,152 2,896,878 DEFERRED INCOME (Note 4p) 231,773 90,275 MINORITY INTEREST IN SUBSIDIARIES (Note 22k) 3,442,862 2,371,427 STOCKHOLDERS’ EQUITY (Note 16) 48,861,594 31,590,963 Capital 45,000,000 17,000,000 Capital reserves 631,512 538,712 Revenue reserves 4,096,766 15,637,409 Asset valuation adjustment (Notes 4c, 4d and 7d) 246,828 (75,952) (Treasury shares) (1,113,512) (1,509,206) TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 612,398,934 398,646,082
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 53 ITAÚ UNIBANCO HOLDING S.A. Consolidated Statement of Income (Note 2a) (In thousands of Reais)
01/01 to 01/01 to 09/30/2009 09/30/2008
INCOME FROM FINANCIAL OPERATIONS 58,364,631 33,654,808 Loan, lease and other credit operations 35,434,728 22,503,412 Securities and derivative financial instruments 18,962,851 8,319,308 Financial income from insurance, pension plan and capitalization operations (Note 11c) 3,549,287 1,586,682 Foreign exchange operations (94,334) 259,751 Compulsory deposits 512,099 985,655 EXPENSES ON FINANCIAL OPERATIONS (23,176,914) (16,906,894) Money market (20,176,640) (14,108,814) Financial expenses on technical provisions for pension plan and capitalization (Note 11c) (3,089,433) (1,284,920) Borrowings and onlending 89,159 (1,513,160) INCOME FROM FINANCIAL OPERATIONS BEFORE LOAN LOSSES 35,187,717 16,747,914 RESULT OF LOAN LOSSES (Note 8d I) (10,942,336) (5,059,239) Expense for allowance for loan losses (12,382,541) (5,939,019) Income from recovery of credits written off as loss 1,440,205 879,780 GROSS INCOME FROM FINANCIAL OPERATIONS 24,245,381 11,688,675 OTHER OPERATING REVENUES (EXPENSES) (9,758,146) (3,870,676) Banking service fees (Note 13d) 8,966,016 5,922,305 Asset management 1,629,437 1,450,992 Current account services 335,799 184,131 Credit cards 4,233,125 1,895,941 Sureties and credits granted 950,175 963,799 Receipt services 885,651 591,598 Other 931,829 835,844 Income from bank charges (Note 13e) 2,029,971 1,573,671 Result from insurance, pension plan and capitalization operations (Note 11c) 1,721,411 1,010,913 Personnel expenses (Note 13f) (7,234,198) (4,612,682) Other administrative expenses (Note 13g) (8,430,816) (4,822,441) Tax expenses (Notes 4o and 14a II) (3,036,917) (1,632,091) Equity in earnings of affiliates (Note 15a III) 147,071 62,163 Other operating revenues (Note 13h) 573,251 559,662 Other operating expenses (Note 13i) (4,493,935) (1,932,176) OPERATING INCOME 14,487,235 7,817,999 NON-OPERATING INCOME (Note 22l) 389,671 314,478 INCOME BEFORE TAXES ON INCOME AND PROFIT SHARING 14,876,906 8,132,477 INCOME TAX AND SOCIAL CONTRIBUTION (Notes 4o and 14a I) (6,162,325) (1,400,143) Due on operations for the period (6,770,364) (1,952,949) Related to temporary differences 608,039 552,806 PROFIT SHARING (1,237,998) (645,909) Employees – Law No. 10,101 of 12/19/2000 (1,071,655) (500,965) Officers – Statutory – Law No. 6,404 of 12/15/1976 (166,343) (144,944) MINORITY INTEREST IN SUBSIDIARIES (Note 22k) (622,763) (154,618) NET INCOME 6,853,820 5,931,807 WEIGHTED AVERAGE OF THE NUMBER OF OUTSTANDING SHARES 4,515,095,972 3,268,393,184 NET INCOME PER SHARE – R$ 1.52 1.81 BOOK VALUE PER SHARE – R$ (OUTSTANDING AT 09/30) 10.80 9.68
EXCLUSION OF NONRECURRING EFFECTS (Notes 2a and 22l) 823,407 98,966 NET INCOME WITHOUT NONRECURRING EFFECTS 7,677,227 6,030,773 NET INCOME PER SHARE – R$ 1.70 1.85
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 54 ITAÚ UNIBANCO HOLDING S.A. Consolidated Statement of Cash Flows (In thousands of Reais)
01/01 to 01/01 to 09/30/2009 09/30/2008
ADJUSTED NET INCOME 26,007,891 12,864,473 Net income 6,853,820 5,931,807 Adjustments to net income: 19,154,071 6,932,666 Granted options recognized 85,644 - Adjustment to market value of securities and derivative financial instruments (assets/liabilities) (2,850,387) (143,106) Allowance for loan losses 12,382,541 5,939,019 Results from operations with subordinated debt 833,532 1,155,404 Results from securitization of foreign payment orders (309,741) 125,513 Financial expenses on technical provisions for pension plan and capitalization 3,089,433 1,284,920 Depreciation and amortization (Note 15b) 1,640,143 904,632 Adjustment to legal liabilities – tax and social security 1,809,860 176,788 Adjustment to provision for contingent liabilities (305,323) 436,935 Deferred taxes (608,039) (552,806) Equity in earnings of affiliates (Note 15a) (147,071) (62,163) Income from available-for-sale securities 1,800,901 (1,959,960) Income from held-to-maturity securities 508,736 (180,443) Amortization of goodwill - Redecard S.A. (Note 2a) 556,575 - (Income) loss from sale of investments (365,914) (291,586) Minority interest 622,763 154,618 Other 410,418 (55,099) CHANGE IN ASSETS AND LIABILITIES (3,505,224) (3,077,976) (Increase) decrease in interbank investments 11,145,800 (31,158,333) (Increase) decrease in securities and derivative financial instruments (assets/liabilities) 8,194,828 (12,139,634) (Increase) decrease in compulsory deposits with the Central Bank of Brazil 23,833 (783,706) (Increase) decrease in interbank and interbranch accounts (assets/liabilities) 803,321 662,925 (Increase) decrease in loan, lease and other credit operations (4,541,461) (40,572,369) (Increase) decrease in other receivables and other assets 2,916,382 (1,326,913) (Increase) decrease in foreign exchange portfolio and negotiation and intermediation of securities (assets/liabilities) 605,584 (1,133,005) (Decrease) increase in deposits (17,100,006) 31,485,937 (Decrease) increase in deposits received under securities repurchase agreements 2,305,994 41,070,372 (Decrease) increase in funds for issuance of securities (1,058,040) 2,211,412 (Decrease) increase in borrowings and onlending (9,930,073) 4,007,657 (Decrease) increase in credit card operations (Assets/Liabilities) (871,608) (1,178,313) (Decrease) increase in securitization of foreign payment orders (3,518,992) 218,229 (Decrease) increase in technical provisions for insurance, pension plan and capitalization 3,890,507 1,637,627 (Decrease) Increase in collection and payment of taxes and contributions 2,711,712 2,733,352 (Decrease) Increase in other liabilities 3,883,964 2,226,087 (Decrease) increase in deferred income 668 16,766 Payment of income tax and social contribution (2,967,637) (1,056,067) NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 22,502,667 9,786,497
Interest on capital / dividends received from affiliated companies 63,152 88,880 Funds received from sale of available-for-sale securities 11,310,223 6,350,415 Funds received from redemption of held-to-maturity securities 47,471 421,792 Disposal of assets not for own use 191,477 50,204 Disposal of investments 384,145 309,678 Payment of income tax and social contribution from sale of investments (124,411) (99,139) Sale of fixed assets 49,790 43,739 Purchase of available-for-sale securities (9,460,025) (11,546,267) Cash and cash equivalents of assets and liabilities arising from the purchase of Redecard S.A. (Note 2a) (485,994) - Purchase of investments (32,080) (226,997) Purchase of fixed assets (700,408) (456,551) Purchase of intangible assets (318,444) (530,466) NET CASH PROVIDED BY (USED IN) INVESTMENT ACTIVITIES 924,896 (5,594,712)
Increase (decrease) in subordinated debt (525,537) 25,585 Change in minority interest (458,314) 74,566 Granting of stock options 218,010 82,073 Purchase of treasury shares (21) (1,289,995) Interest on capital paid (3,619,572) (2,803,422) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (4,385,434) (3,911,193)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 19,042,129 280,592
Cash and cash equivalents at the beginning of the period 35,777,232 22,499,400 Cash and cash equivalents at the end of the period (Notes 4a and 5) 54,819,361 22,779,992
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 55
ITAÚ UNIBANCO HOLDING S.A. Consolidate Statement of Added Value
(In thousands of Reais) 01/01 to 01/01 to 09/30/2009 09/30/2008 INCOME 56,874,010 36,342,576 Financial operations 58,364,631 33,654,808 Banking services 10,995,987 7,495,976 Result from insurance, pension plan and capitalization operations 1,721,411 1,010,913 Result of allowance for loan losses (Note 8d) (10,942,336) (5,059,239) Other (3,265,683) (759,882) EXPENSES ON FINANCIAL OPERATIONS (23,176,914) (16,906,894) INPUTS PURCHASED FROM THIRD PARTIES (6,794,750) (4,352,758) Materials, energy and other (311,419) (217,020) Third-party services (2,138,417) (949,424) Other (4,344,914) (3,186,314) Data processing and telecommunications (Note 13g) (1,851,804) (1,299,627) Advertising, promotions and publications (Note 13g) (641,529) (395,404) Conservation and maintenance (438,835) (222,473) Transportation (Note 13g) (280,324) (204,339) Security (Note 13g) (280,042) (177,397) Travel expenses (Note 13g) (87,280) (66,355) Legal (Note 13g) (27,561) (24,334) Other (737,539) (796,385) GROSS ADDED VALUE 26,902,346 15,082,924 DEPRECIATION AND AMORTIZATION (Note 13g) (990,457) (434,981) NET ADDED VALUE PRODUCED BY THE COMPANY 25,911,889 14,647,943 ADDED VALUE RECEIVED FROM TRANSFER 147,071 62,163 Equity in earnings (Note 15a III) 147,071 62,163 TOTAL ADDED VALUE TO BE DISTRIBUTED 26,058,960 14,710,106 DISTRIBUTION OF ADDED VALUE 26,058,960 14,710,106 Personnel 8,108,604 4,864,482 Compensation 6,659,356 3,966,543 Benefits 1,075,005 679,830 FGTS – severance pay fund 374,243 218,109 Taxes, fees and contributions 9,828,164 3,464,710 Federal 9,400,895 3,179,284 State 25,567 14,916 Municipal 401,702 270,510 Return on managed assets - Rent 645,609 294,489 Return on own assets 7,476,583 6,086,425 Dividends and interest on capital paid/provided for 2,630,440 1,960,862 Retained earnings (loss) for the period 4,223,380 3,970,945 Minority interest in retained earnings 622,763 154,618
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 56 ITAÚ UNIBANCO HOLDING S.A. Balance Sheet (In thousands of Reais)
ASSETS 09/30/2009 09/30/2008
CURRENT ASSETS 7,817,727 616,606 CASH AND CASH EQUIVALENTS 197 147 INTERBANK INVESTMENTS (Notes 4b and 6) 6,830,527 184,148 Money market 142,686 184,148 Interbank deposits 6,687,841 -
SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (Notes 4c, 4d and 7) 5,198 - Own portfolio 566 - Pledged in guarantee 4,632 - OTHER RECEIVABLES 979,057 429,512 Income receivable (Note 15a I) 30,432 39,840 Sundry (Note 13a) 948,625 389,672 OTHER ASSETS – Prepaid expenses (Note 4g) 2,748 2,799 LONG-TERM RECEIVABLES 105,244 490,664 INTERBANK INVESTMENTS – Interbank deposits (Notes 4b and 6) - 400,202 SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (Notes 4c, 4d and 7) 24,749 23,878 OTHER RECEIVABLES - Sundry (Note 13a) 80,495 66,584 PERMANENT ASSETS 57,436,916 34,666,579 INVESTMENTS 57,436,526 34,665,963 Investments in subsidiaries (Notes 4h and 15a I ) 57,436,119 34,665,556 Other 407 407 FIXED ASSETS (Notes 4i) 390 616 TOTAL ASSETS 65,359,887 35,773,849
LIABILITIES
CURRENT LIABILITIES 1,519,525 1,324,551 DERIVATIVE FINANCIAL INSTRUMENTS (Notes 4d and 7h) 51 89 OTHER LIABILITIES 1,519,474 1,324,462 Social and statutory (Note 16b II) 1,473,205 1,313,864 Tax and social security contributions (Note 14c) 34,323 1,292 Sundry 11,946 9,306 LONG-TERM LIABILITIES 1,184,072 516,494 DEPOSITS – Interbank deposits (Notes 4b and 10b) 880,795 334,891 DERIVATIVE FINANCIAL INSTRUMENTS (Notes 4d and 7h) 831 1,426 OTHER LIABILITIES 302,446 180,177 Tax and social security contributions (Note 14c) 302,443 178,651 Sundry 3 1,526 STOCKHOLDERS’ EQUITY (Note 16) 62,656,290 33,932,804 Capital 45,000,000 17,000,000 Capital reserves 631,512 538,712 Revenue reserves 17,891,462 17,979,250 Asset valuation adjustment - (Notes 4c, 4d and 7d) 246,828 (75,952) (Treasury shares) (1,113,512) (1,509,206) TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 65,359,887 35,773,849
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 57 ITAÚ UNIBANCO HOLDING S.A. Statement of Income (In thousands of Reais)
01/01 to 01/01 to 09/30/2009 09/30/2008 INCOME FROM FINANCIAL OPERATIONS 305,566 39,730 Securities and derivative financial instruments 305,566 39,730 EXPENSES ON FINANCIAL OPERATIONS (51,227) (23,464) Money market (51,227) (23,464) GROSS INCOME FROM FINANCIAL OPERATIONS 254,339 16,266 OTHER OPERATING REVENUES (EXPENSES) 4,439,042 5,161,595 Personnel expenses (162,242) (25,982) Other administrative expenses (34,769) (25,534) Tax expenses (Notes 14a II) (14,757) (15,835) Equity in earnings of subsidiaries (Note 15a I) 4,694,570 5,266,209 Other operating revenues (expenses) (43,760) (37,263) OPERATING INCOME 4,693,381 5,177,861 NON-OPERATING INCOME 9,639 7,588 INCOME BEFORE TAXES ON INCOME AND PROFIT SHARING 4,703,020 5,185,449 INCOME TAX AND SOCIAL CONTRIBUTION (Note 4o) 776,955 332,067 Due on operations for the period 4,695 (12,003) Related to temporary differences 772,260 344,070 PROFIT SHARING (8,352) (7,148) Employees – Law No. 10,101 of 12/19/2000 (5,074) (2,608) Officers – Statutory – Law No. 6,404 of 12/15/1976 (3,278) (4,540) NET INCOME 5,471,623 5,510,368 WEIGHTED AVERAGE OF THE NUMBER OF OUTSTANDING SHARES 4,515,095,972 3,268,393,184 NET INCOME PER SHARE – R$ 1.21 1.69 BOOK VALUE PER SHARE – R$ (OUTSTANDING AT 09/30) 13.85 10.40
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 58 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
ITAÚ UNIBANCO HOLDING S.A. Statement of Changes in Stockholders’ Equity (Note 16) (In thousands of Reais)
Asset valuation Capital (Treasury Capital Revenue reserves adjustment - Retained earnings Total reserves shares) (Note 7d)
BALANCES AT 01/01/2008 14,254,213 1,290,059 17,295,023 65,467 - (1,172,394) 31,732,368 Capitalization with reserves – ASM/ESM of 04/23/2008 2,745,787 - (2,745,787) - - - - Restatement of equity securities and others - 271 - - - - 271 Treasury shares - (751,618) (119,492) - - (336,812) (1,207,922) Purchase of treasury shares - - - - - (1,289,995) (1,289,995) Granting of stock options – exercised options - - (119,492) - - 201,565 82,073 Cancellation of shares – ASM/ESM of 04/23/2008 - (751,618) - - - 751,618 - Change in adjustment to market value - - - (141,419) - - (141,419) Reversal of interest on capital and dividends paid on 03/03/2008 – Year 2007 - - 3,837 - - - 3,837 Net income - - - - 5,510,368 - 5,510,368 Appropriations:
- September0 Legal reserve - - 275,518 - (275,518) - - Statutory reserves - - 3,270,151 - (3,270,151) - - Dividends and interest on capital - - - - (1,964,699) - (1,964,699) BALANCES AT 09/30/2008 17,000,000 538,712 17,979,250 (75,952) - (1,509,206) 33,932,804 CHANGES IN THE PERIOD 2,745,787 (751,347) 684,227 (141,419) - (336,812) 2,200,436 BALANCES AT 01/01/2009 29,000,000 597,706 31,192,635 (423,717) - (1,525,695) 58,840,929 Capitalization with reserves – ASM/ESM of 04/24/2009 16,000,000 - (16,000,000) - - - - Treasury shares - (133,764) (60,430) - - 412,183 217,989 Purchase of treasury shares - - - - - (21) (21) Granting of stock options – exercised options - (133,764) (60,430) - - 412,204 218,010 Granting of options recognized - 167,570 (81,926) - - - 85,644 Change in adjustment to market value - - - 670,545 - - 670,545 Reversal of interest on capital and dividends paid on 03/17 and 04/08/2009 – Year 2008 - - 104 - - - 104 Net income - - - - 5,471,623 - 5,471,623 Appropriations: Legal reserve - - 273,581 - (273,581) - - Statutory reserves - - 2,567,498 - (2,567,498) - - Dividends and interest on capital - - - - (2,630,544) - (2,630,544) BALANCES AT 09/30/2009 45,000,000 631,512 17,891,462 246,828 - (1,113,512) 62,656,290 CHANGES IN THE PERIOD 16,000,000 33,806 (13,301,173) 670,545 - 412,183 3,815,361 59 ITAÚ UNIBANCO HOLDING S.A. Statement of Cash Flows (In thousands of Reais)
01/01 to 01/01 to 09/30/2009 09/30/2008 ADJUSTED NET INCOME (LOSS) 133,881 (61,218) Net income 5,471,623 5,510,368 Adjustments to net income: (5,337,742) (5,571,586) Granting of options recognized 85,644 - Deferred taxes (772,260) (344,070) Equity in earnings of subsidiaries (Note 15a I) (4,694,570) (5,266,209) Amortization of goodwill 43,308 38,559 Other 136 134 CHANGE IN ASSETS AND LIABILITIES 165,211 255,845 (Increase) decrease in securities and derivative financial instruments (assets/liabilities) (6,877) 29,372 (Increase) decrease in other receivables and other assets 203,983 194,462 Increase (decrease) in other liabilities (31,895) 32,011 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 299,092 194,627
Interest on capital/dividends received 8,917,342 3,511,072 (Increase) decrease in interbank investments (6,378,518) 284,505 (Purchase) Disposal of investments - (300,751) (Purchase) Disposal of fixed assets/deferred charges 25 (279) NET CASH PROVIDED BY (USED IN) INVESTMENT ACTIVITIES 2,538,849 3,494,547
Increase (decrease) in deposits 534,798 334,891 Granting of stock options 218,010 82,073 Purchase of treasury shares (21) (1,289,995) Dividends and interest on capital paid (3,619,572) (2,803,422) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,866,785) (3,676,453)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (28,844) 12,721 Cash and cash equivalents at the beginning of the period 171,727 171,573 Cash and cash equivalents at the end of the period (Notes 4a and 5) 142,883 184,294
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 60
ITAÚ UNIBANCO HOLDING S.A. Statement of Added Value (In thousands of Reais)
01/01 to 01/01 to 09/30/2009 09/30/2008 INCOME 1,170,029 352,305 Financial operations 305,566 39,730 Other 864,463 312,575 EXPENSES ON FINANCIAL OPERATIONS (51,227) (23,464) INPUTS PURCHASED FROM THIRD PARTIES (33,636) (24,901) Third-party services (12,786) (11,029) Advertising, promotions and publications (2,290) (1,430) Financial system services (4,873) (1,987) Insurance (2,942) (1,789) Other (10,745) (8,666) GROSS ADDED VALUE 1,085,166 303,940 DEPRECIATION AND AMORTIZATION (150) (156) NET ADDED VALUE PRODUCED BY THE COMPANY 1,085,016 303,784 ADDED VALUE RECEIVED FROM TRANSFER 4,694,570 5,266,209 Equity in earnings 4,694,570 5,266,209 TOTAL ADDED VALUE TO BE DISTRIBUTED 5,779,586 5,569,993 DISTRIBUTION OF ADDED VALUE 5,779,586 5,569,993 Personnel 160,100 30,429 Compensation 152,428 26,187 Benefits 5,797 2,605 FGTS – severance pay fund 1,875 1,637 Taxes, fees and contributions 147,056 28,720 Federal 146,937 28,664 State 13 7 Municipal 106 49 Return on managed assets - Rent 807 476 Return on own assets 5,471,623 5,510,368 Dividends and interest on capital paid/provided for 2,630,440 1,960,862 Retained earnings/ (loss) for the period 2,841,183 3,549,506
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 61 ITAÚ UNIBANCO HOLDING S.A. NOTES TO THE FINANCIAL STATEMENTS FROM JANUARY 1 TO SEPTEMBER 30, 2009 AND 2008 (In thousands of Reais)
NOTE 1 - OPERATIONS
Itaú Unibanco Banco Holding S.A. (ITAÚ UNIBANCO HOLDING) is a publicly-held company which, together with its subsidiary and affiliated companies, operates in Brazil and abroad, with all types of banking activities, through its commercial, investment, consumer credit, real estate loan, finance and investment credit, and lease portfolios, including foreign exchange operations, and other complementary activities, with emphasis on Insurance, Private Pension Plans, Capitalization, Securities Brokerage and Administration of Credit Cards, Consortia, Investment Funds and Managed Portfolios.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 62 NOTE 2 – PRESENTATION OF THE FINANCIAL STATEMENTS
a) Presentation of the Financial Statements
The financial statements of ITAÚ UNIBANCO HOLDING and of its subsidiaries (ITAÚ UNIBANCO HOLDING CONSOLIDATED) have been prepared in accordance with accounting principles established by the Brazilian Corporate Law, including the amendments introduced by Laws No. 11,638, of December 28, 2007, and No. 11,941, of May 27, 2009 (Note 22n), in conformity, when applicable, with instructions issued by the Central Bank of Brazil (BACEN), the National Monetary Council (CMN), the Brazilian Securities and Exchange Commission (CVM) and the Superintendency of Private Insurance (SUSEP), and National Council of Private Insurance (CNSP), which include the use of estimates necessary to calculate accounting provisions.
On February 18, 2009, BACEN approved the merger of the financial operations of ITAÚ UNIBANCO S.A. (ITAÚ UNIBANCO) and Unibanco – União de Bancos Brasileiros S.A. (UNIBANCO). These operations were integrated according to the respective business segment, through splits and mergers occurred on February 28, 2009; therefore, the Consolidated Financial Statements for the period from January 1 to September 30, 2009, and the corresponding notes to these financial statements are not presented with data “Without UNIBANCO”, as disclosed at December 31, 2008.
On March 30, 2009, ITAÚ purchased 24,082,760 nominative common shares of Redecard S.A. for R$ 590,028, giving rise to a goodwill amounting to R$ 556,575 which, net of taxes, totaled R$ 506,483, fully amortized in the Consolidated Financial Statements. In view of this transaction, ITAÚ UNIBANCO started to have the stockholding control over Redecard S.A., fully consolidated in the Financial Statements of ITAÚ UNIBANCO HOLDING from the first quarter of 2009.
In order to enable the proper analysis of the net income, the heading “Net income without nonrecurring effects” is presented below the Consolidated Statement of Income, and this effect is highlighted in a heading called “Exclusion of nonrecurring effects” (Note 22l).
As set forth in the sole paragraph of article 7 of BACEN Circular Letter No. 3,068, of November 8, 2001, securities classified as trading securities (Note 4c) are presented in the Balance Sheet under Current Assets regardless of their maturity dates.
Lease Operations are presented at present value in the Balance Sheet, and the related income and expenses, which represent the financial result of these operations, are presented, grouped together, under loan, lease and other credit operations in the Statement of Income. Advances on exchange contracts are reclassified from Other Liabilities – Foreign Exchange Portfolio. The foreign exchange result is presented on an adjusted basis, with the reclassification of expenses and income, in order to represent exclusively the impact of variations and differences of rates on the balance sheet accounts denominated in foreign currencies.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 63 b) Consolidation
As set forth in paragraph 1, article 2, of BACEN Circular No. 2,804, of February 11, 1998, the financial statements of ITAÚ UNIBANCO HOLDING comprise the consolidation of its foreign branches and subsidiaries.
Intercompany transactions and balances and results have been eliminated on consolidation. The investments held by consolidated companies in Exclusive Investment Funds are consolidated. The investments in these fund portfolios are classified by type of transaction and were distributed by type of security, in the same categories in which these securities had been originally allocated. The effects of the Foreign Exchange Variation on investments abroad are classified in the heading Securities and Derivative Financial Instruments in Statement of Income, including for comparability effects.
The difference between the Net Income and Stockholders’ Equity between ITAÚ UNIBANCO HOLDING and ITAÚ UNIBANCO HOLDING CONSOLIDATED (Note 16d) results from the elimination of unrealized profits arising from transactions between the parent company and consolidated companies, and from the adoption of different criteria for the amortization of goodwill originated on purchase of investments and the recognition of deferred tax assets.
In ITAÚ UNIBANCO HOLDING, the goodwill recorded in subsidiaries, mainly originated from the ITAÚ UNIBANCO merger, is being amortized based on the expected future profitability and appraisal reports or upon realization of the investment, according to the rules and guidance of CMN and BACEN.
In ITAÚ UNIBANCO HOLDING CONSOLIDATED, this goodwill was fully amortized in the years when these investments occurred, in order to: a) permit better comparability with previous periods’ consolidated financial statements; and b) permit measuring Net Income and Stockholders’ Equity based on conservative criteria.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 64 The consolidated financial statements comprise ITAÚ UNIBANCO HOLDING and its direct and indirect subsidiaries, among which we highlight:
Incorporation Interest % country 09/30/2009 09/30/2008 Afinco Americas Madeira, SGPS, Sociedade Unipessoal, Ltda. Portugal 100.00 100.00 Banco Fiat S.A. Brazil 99.99 99.99 Banco Itaú Argentina S.A. Argentina 99.99 99.95 Banco Itaú BBA S.A. Brazil 99.99 95.74 Banco Itaú Chile S.A. Chile 99.99 99.99 Banco Itaú Europa Luxembourg S.A. (1) Luxembourg 99.98 19.52 Banco Itaú Europa, S.A. (1) Portugal 99.99 19.52 Banco Itaú Uruguay S.A. Uruguay 100.00 100.00 Banco ItauBank S.A. Brazil 100.00 100.00 Banco Itaucard S.A. Brazil 99.99 99.99 Banco Itaucred Financiamentos S.A. Brazil 99.99 99.99 Banco Itauleasing S.A. Brazil 99.99 99.99 BIU Participações S.A. (2)(8) Brazil 66.15 41.66 Cia. Itaú de Capitalização Brazil 99.99 99.99 Dibens Leasing S.A. - Arrendamento Mercantil (3)(4) Brazil 100.00 99.99 FAI - Financeira Americanas Itaú S.A. Crédito, Financiamento e Investimento (5) Brazil 50.00 50.00 Fiat Administradora de Consórcios Ltda. Brazil 99.99 99.99 Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento (6) Brazil 50.00 50.00 Hipercard Banco Múltiplo S.A. (3) Brazil 99.99 - Itaú Administradora de Consórcios Ltda. Brazil 99.99 99.99 Itau Bank, Ltd. (7) Cayman Islands 100.00 100.00 Itaú Corretora de Valores S.A. Brazil 99.99 99.99 Itaú Seguros S.A. Brazil 100.00 100.00 Itaú Unibanco S.A. Brazil 100.00 100.00 Itaú Vida e Previdência S.A. Brazil 100.00 99.99 Itaú XL Seguros Corporativos S.A. (6) Brazil 50.00 50.00 Itaúsa Export S.A. (1) Brazil 100.00 22.22 OCA Casa Financiera S.A. Uruguay 100.00 100.00 Orbitall Serviços e Processamento de Informações Comerciais S.A. Brazil 99.99 99.99 Redecard S.A. (Note 2a) (8) Brazil 50.00 23.21 Unibanco - União de Bancos Brasileiros S.A. (3) Brazil 100.00 - Unibanco Holdings S.A. (3) Brazil 100.00 - Unibanco Cayman Bank Ltd. (3) Cayman Islands 100.00 - Unibanco Participações Societárias S.A. (3) Brazil 50.99 - (1) Increase in interest arising from the purchase of shares of Itausa Export S.A. and Itausa Europa S.A. by Itaú Unibanco S.A. in November 2008; (2) Companies fully consolidated from this year; (3) Companies included in consolidation from December 31, 2008 as a result of the ITAÚ UNIBANCO HOLDING merger; (4) In 2008 it represents the interest in ItauBank Leasing S.A. Arrendamento Mercantil merged in February 2009 as result of the corporate restructuring; (5) Companies with shared control included proportionally in consolidation; (6) Company with shared company, fully included in consolidation, as authorized by CVM, in view of the business management by ITAÚ UNIBANCO HOLDING; (7) It does not include Redeemable Preferred Shares (Note 10f); (8) Increase in interest arising from ITAÚ UNIBANCO HOLDING merger.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 65 NOTE 3 – REQUIREMENTS OF CAPITAL AND FIXED ASSET LIMITS a) Basel and Fixed Asset Ratios The main indicators at September 30, 2009, according to present regulation, are as follows:
Financial system Economic-financial consolidated (1) consolidated (2) Referential equity (3) 66,751,490 68,623,943 Basel ratio 16.7% 16.3% Tier I 13.3% 13.1% Tier II 3.4% 3.2% Fixed assets ratio (4) 31.7% 14.8% Excess capital in relation to fixed assets 12,225,158 24,132,394 (1) Consolidated financial statements including financial companies only; (2) Consolidated financial statements comprising all subsidiary companies, including insurance, pension plan and capitalization companies and those in which control is based on the sum of interests held by the institution, its managers, parent company and related companies, notwithstanding their percentage, as well as those directly or indirectly acquired, through investment funds. (3) The CMN, through Resolution No. 3,444, of February 28, 2007, determined the Referential Equity (PR), for purposes of calculating operating limits, as being the sum of both Tier I and Tier II levels, following the international experience, each of them comprising items from stockholders' equity, as well as subordinated debt and hybrid capital and debt instruments. CMN Resolution No. 3,674, of December 30, 2008, started permitting the full addition, to Tier I, of the additional provision amount to the minimum percentages required by CMN Resolution No. 2,682 of December 21, 1999, for loan, lease and other operations with credit characteristics; (4) The difference between the fixed asset ratio of the financial system consolidated and the economic-financial consolidated arises from the inclusion of non-financial subsidiary companies, which provide high liquidity and low level of fixed asset ratio, with a consequent decrease in the fixed asset ratio of the economic and financial consolidated amounts, enabling, when necessary, the distribution of funds to the financial companies.
Management considers the current Basel ratio (16.3%, based on economic-financial consolidated) to be adequate, taking into account the following:
a) Is much higher than the minimum required by the authorities (11.0%); and
b) In view of the realizable values of assets (Note 18), the additional provision exceeding the minimum required and unrecorded deferred tax assets, the ratio would increase to 17.6%.
CMN Resolution No. 3,490, of August 29, 2007, provides for the criteria for computation of the Required Referential Equity (PRE). For calculation of the risk portions, the procedures of Circular No. 3,360, of September 12, 2007 for credit risk, of Circulars Nos. 3,361, 3,362, 3,363, 3,364, 3,366 and 3,368, of September 12, 2007, 3,388, of June 4, 2008, and 3,389, of June 25, 2008, and Circular Letters Nos. 3,309 and 3,310, of April 15, 2008 for market risk, and Circular No. 3,383 and Circular Letters Nos. 3,315 and 3,316, of April 30, 2008 for operational risk, were followed. For the operational risk portion, ITAÚ UNIBANCO HOLDING opted for the use of the Alternative Standardized Approach.
The operational risk portion will be increasingly incorporated, as set forth by Circular No. 3,383. From July 1, 2009, it stands at 80% of the determined amount, and it will be increased every six-month period until reaching the full capital amount on January 1, 2010. Should the total effect be immediately considered, the Basel ratio would be 16.6% for the Financial System Consolidated and 16.2% for the Economic-Financial Consolidated.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 66 The Referential Equity used for calculation of ratios and composition of risk exposures at September 30, 2009, are as follows:
Economic- Financial system financial Consolidated consolidated
Stockholders’ Equity Itaú Unibanco Holding S.A. (Consolidated) 48,861,594 48,861,594 Minority interests in subsidiaries 900,023 2,834,882 Unrealized income (loss) 2,290 - Consolidated stockholders’ equity (BACEN) 49,763,907 51,696,476 Preferred shares with clause of redemption excluded from Tier 1 (698,957) (698,957) Additional provision for loan, lease and other operations 6,122,933 6,104,000 Revaluation reserves excluded from Tier I (6) (836) Deferred permanent assets excluded from Tier I (772,748) (779,369) Deferred tax assets excluded from Tier I (649,451) (684,013) Adjustments to market value – securities and derivative financial instruments excluded from Tier I (246,829) (246,862) Tier I 53,518,849 55,390,439 Preferred shares with clause of redemption 698,957 698,957 Subordinated debt 12,462,322 12,462,322 Revaluation reserves 6 836 Adjustment to market value - securities and derivative financial instruments 246,829 246,862 Tier II 13,408,114 13,408,977 Tier I + Tier II 66,926,963 68,799,416 Exclusions: Funding instruments issued by financial institutions (175,473) (175,473) Referential equity 66,751,490 68,623,943 Risk exposure Credit 41,171,893 93.8% 43,508,029 94.1% Securities 2,273,730 5.2% 2,449,985 5.3% Loan operations - Retail 8,342,034 19.0% 8,253,500 17.9% Loan operations – Non-retail 12,596,826 28.7% 12,593,969 27.2% Joint obligations - Retail 7,648 0.0% 7,648 0.0% Joint obligations – Non-retail 3,405,082 7.8% 3,405,082 7.4% Loan commitments - Retail 1,967,578 4.5% 1,940,346 4.2% Loan commitments – Non-retail 1,221,838 2.8% 1,221,547 2.6% Other exposures 11,357,157 25.9% 13,635,952 29.5% Operational 1,881,993 4.3% 1,881,993 4.1% Retail 296,370 0.7% 296,370 0.6% Commercial 572,260 1.3% 572,260 1.2% Corporate finance 51,760 0.1% 51,760 0.1% Negotiation and sales 490,141 1.1% 490,141 1.1% Payments and settlements 208,216 0.5% 208,216 0.5% Financial agent services 76,612 0.2% 76,612 0.2% Asset management 170,743 0.4% 170,743 0.4% Retail brokerage 14,533 0.0% 14,533 0.0% Business plans 1,358 0.0% 1,358 0.0% Market 835,606 1.9% 834,018 1.8% Operations subject to interest rate variation 587,333 1.3% 587,512 1.3% Fixed rate denominated in Real 353,298 0.8% 353,507 0.8% Foreign currency coupon 106,331 0.2% 106,301 0.2% Price index coupon 101,724 0.2% 101,724 0.2% Interest rate coupon 25,980 0.1% 25,980 0.1% Operations subject to commodity price variation 41,326 0.1% 41,326 0.1% Operations subject to stock price variation 206,947 0.5% 205,180 0.4% Required Referential Equity 43,889,492 100.0% 46,224,040 100.0% Excess capital in relation to Required Referential Equity 22,861,998 52.1% 22,399,903 48.5% Exposure weighted by Risk 398,995,383 420,218,543
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 67
During this period, the effects of the changes in legislation and balances were as follows:
Financial system consolidated Economic-financial consolidated Changes in the Basel Ratio Referential Weighted Referential Weighted Effect Effect equity exposure equity exposure
Ratio at 12/31/2008 66,766,103 413,812,916 16.1% 67,994,861 416,539,726 16.3% Result for the period 6,855,199 1.7% 7,461,722 1.8% Interest on capital and dividends (2,630,440) -0.6% (2,630,440) -0.6% Allowance for loan losses additional to the minimum percentage required by CMN Resolution No. 2,682/99 (1,665,871) (1,665,871) -0.3% (1,687,000) (1,687,000) -0.3% Granting of options recognized 85,644 0.0% 85,644 0.0% Granting of stock options – exercised options in the period 218,010 0.0% 218,010 0.0% Asset valuation adjustment 669,895 0.2% 667,717 0.2% Treasury shares (21) 0.0% (21) 0.0% Subordinated debt and redeemable preferred shares (3,171,208) -0.8% (3,171,208) -0.8% Deferred assets excluded from Tier I of referential equity (87,066) (87,066) 0.0% (84,865) (84,865) 0.0% Other changes in referential equity (288,755) -0.1% (230,477) -0.1% Changes in risk exposure (13,064,596) 0.5% 5,450,682 -0.2% Ratio at 09/30/2009 66,751,490 398,995,383 16.7% 68,623,943 420,218,543 16.3%
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 68 b) Capital for Insurance Activity
SUSEP, following the worldwide trend towards the strengthening of the insurance market, disclosed on December 26, 2006 the Resolutions Nos. 155 and 158, amended by Resolutions No. 178 of December 28, 2007, and No. 200 of December 16, 2008, and Circular No. 355 of December 14, 2007. The regulations, in force as from January 2008, provide for the rules on regulatory capital required for authorization and operation of insurance companies and rules for the allocation of capital from subscription risk for several insurance segments.
Noteworthy is the fact that the adjusted stockholders’ equity of ITAU UNIBANCO HOLDING companies exclusively engaged in insurance activities is higher than the required regulatory capital. As of September 30, 2009, the regulatory capital required was R$ 1,074,363 for an existing adjusted stockholders’ equity of R$ 3,502,257.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 69 NOTE 4 – SUMMARY OF THE MAIN ACCOUNTING PRACTICES
a) Cash and cash equivalents – for purposes of Consolidated Statement of Cash Flows, it includes cash and current accounts in banks (considered in the heading cash and cash equivalents), interbank deposits and securities purchased under agreements to resell – funded position that have original maturities of up to 90 days or less.
b) Interbank investments, remunerated restricted credits – Central Bank of Brazil, remunerated deposits, deposits received under securities repurchase agreements, funds from acceptance and issuance of securities, borrowings and onlendings, subordinated debt and other receivables and payables – transactions subject to monetary correction and foreign exchange variation and operations with fixed charges are recorded at present value, net of the transaction costs incurred, calculated “pro rata die” based on the effective rate of transactions, according to CVM Resolution No. 556 of November 12, 2008.
c) Securities - recorded at cost of acquisition restated by the index and/or effective interest rate and presented in the Balance Sheet, according to BACEN Circular No. 3,068, of November 8, 2001. Securities are classified into the following categories:
Trading securities – acquired to be actively and frequently traded, and adjusted to market value, with a contra-entry to the results for the period;
Available-for-sale securities – securities that can be negotiated but are not acquired to be actively and frequently traded. They are adjusted to their market value with a contra-entry to an account disclosed in stockholders’ equity;
Held-to-maturity securities – securities, except for non-redeemable shares, for which the bank has the financial condition and intends or is required to hold them in the portfolio up to their maturity, are recorded at cost of acquisition, or market value, whenever these are transferred from another category. The securities are adjusted up to their maturity date, not being adjusted to market value.
Gains and losses on available-for-sale securities, when realized, are recognized at the trading date in the statement of income, with a contra-entry to a specific stockholders’ equity account.
Decreases in the market value of available-for-sale and held-to-maturity securities below their related costs, resulting from non-temporary reasons, are recorded in results as realized losses.
d) Derivative financial instruments - these are classified on the date of their acquisition, according to management's intention of using them either as a hedge or not, according to BACEN Circular No. 3,082, of January 30, 2002. Transactions involving financial instruments, carried out upon the client's request, for their own account, or which do not comply with the hedging criteria (mainly derivatives used to manage the overall risk exposure) are stated at market value, including realized and unrealized gains and losses, which are recorded directly in the statements of income.
The derivatives used for protection against risk exposure or to modify the characteristics of financial assets and liabilities, which have changes in market value highly associated with those of the items being protected at the beginning and throughout the duration of the contract, and which are found effective to reduce the risk related to the exposure being protected, are classified as a hedge, in accordance with their nature:
Market Risk Hedge – Financial assets and liabilities, as well as their related financial instruments, are accounted for at their market value plus realized and unrealized gains and losses, which are recorded directly in the statement of income;
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 70 Cash Flow Hedge - The effective amount of the hedge of financial assets and liabilities, as well as their related financial instruments, are accounted for at their market value plus realized and unrealized gains and losses, net of tax effects, when applicable, and recorded in a specific account in stockholders’ equity. The ineffective portion of hedge is recorded directly in the statement of income.
e) Loan, lease and other credit operations (Operations with credit granting characteristics) – these transactions are recorded at present value and calculated “pro rata die” based on the variation of the contracted index and interest rate, and are recorded on the accrual basis until the 60th day overdue in financial companies. After the 60th day, income is recognized upon the effective receipt of installments. Credit card operations include receivables arising from the purchases made by cardholders. The funds related to these amounts are recorded in Other Liabilities – Credit Card Operations, which also include funds arising from other credits related to transactions with credit card issuers.
f) Allowance for loan losses - the balance of the allowance for loan losses was recorded based on the credit risk analysis, at an amount considered sufficient to cover loan losses according to the rules determined by CMN Resolution No. 2,682 of December 21, 1999, among which are:
Provisions are recorded from the date loans are granted, based on the client’s risk rating and on the periodic quality evaluation of clients and industries, and not only in the event of default;
Based exclusively on delinquency, write-offs of credit operations against loss must be carried out 360 days after the due date of the credit or 540 days for operations that mature after a period of 36 months.
g) Other assets - these assets are mainly comprised by assets held for sale relating to real estate available for sale, own real estate not in use and real estate received as payment in kind, which are adjusted to market value through the set-up of a provision, according to current regulations; reinsurance unearned premiums (Note 4m l); and prepaid expenses, corresponding to disbursements, the benefit of which will occur in future periods.
h) Investments - in subsidiary and affiliated companies, investments are accounted for under the equity method. The consolidated financial statements of foreign branches and subsidiaries are adapted to comply with Brazilian accounting practices and converted into Reais. Other investments are recorded at cost and adjusted to market value by setting up a provision in accordance with current standards.
i) Fixed assets - these assets are stated at cost of acquisition or construction, less accumulated depreciation, adjusted to market value until December 31, 2007, when applicable. For insurance, pension plan and capitalization operations, property and equipment are adjusted to market value supported by appraisal reports. Correspond to rights related to tangible assets intended for maintenance of the company's operations or exercised for such purpose, including assets arising from transactions that transfer to the company their benefits, risks and control. The items acquired through Lease contracts are recorded according to CVM Resolution No. 554, of November 12, 2008, as contra-entry to Lease obligations. Depreciation is calculated using the straight-line method, based on monetarily restated cost, at the following annual rates:
Real estate in use 4 % to 8 % Leasehold improvements From 10% Installations, furniture, equipment and security, transportation and communication systems 10 % to 25 % EDP systems 20 % to 50 %
j) Operating leases – leased assets are stated at cost of acquisition less accumulated depreciation. The depreciation of leased assets is recognized under the straight-line method, based on their usual useful lives, taking into account that the useful life shall be decreased by 30% should it meet the conditions provided for by Ordinance No. 113 of February 26, 1988 issued by the Ministry of Finance. Receivables are recorded in lease receivable at the contractual amount, with contra-entry to unearned income accounts. The recognition in income will occur on the due date of the installments.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 71 k) Intangible assets – correspond to rights acquired whose subjects are intangible assets intended for maintenance of the company or which are exercised for such purpose, according to the CMN Resolution No. 3,642, of November 26, 2008. They are composed of rights acquired to credit payrolls and partnership agreements, amortized over the agreement terms, and software and customer portfolios, amortized over a term varying from five to ten years.
l) Reduction to the recoverable value of assets – a loss is recognized when there are clear evidences that assets are stated at a non-recoverable value. From 2008, this procedure started to be adopted annually in the fourth quarter.
m) Insurance, pension plan and capitalization operations – Insurance premiums, acceptance coinsurance and selling expenses are accounted for in accordance with the insurance effectiveness term, through the recognition and reversal of the provision for unearned premiums and deferred selling expenses. Interest arising from fractioning of insurance premiums is accounted for as incurred. Revenues from social security contributions, gross revenue from capitalization certificates and respective technical provisions are recognized upon receipt.
I - Credits from operations and other assets related to insurance and reinsurance operations:
Insurance premiums receivable – Refer to installments of insurance premiums receivable, current and past due, in accordance with insurance policies issued.
Reinsurance recoverable amounts – Refer to claims paid to the insured party pending recovery from Reinsurer, installments of unsettled claims and incurred but not reported claims - Reinsurance (IBNR), classified in assets in accordance with the criteria established by CNSP Resolution No. 162, of December 26, 2006, as amended by CNSP Resolution No. 195, of December 16, 2008, and SUSEP Circular No. 379, of December 19, 2008.
Reinsurance unearned premiums – Recognized to determine the portion of reinsurance unearned premiums, calculated “pro rata die”, and for risks of policies not issued computed based on estimates, based on the actuarial technical study and in compliance with the criteria established by CNSP Resolution No. 162, of December 26, 2006, as amended by CNSP Resolution No. 195, of December 16, 2008, and SUSEP Circular No. 379, of December 19, 2008.
II - Technical provisions of insurance, pension plan and capitalization – provisions are recognized according to the technical notes approved by SUSEP and criteria established by CNSP Resolution No. 162 of December 26, 2006 and the amendments introduced by CNSP Resolution No. 181, of December 19, 2007, and CNSP Resolution No. 195, of December 16, 2008.
II.I - Insurance
Provision for unearned premiums – recognized to determine unearned premiums relating to the risk coverage period, calculated “pro rata die”, and relating to risks not yet issued, calculated based on estimates, according to an actuarial technical study;
Provision for premium deficiency – recognized according to the Technical Actuarial Note in case of insufficient Provision for unearned premiums;
Provision for unsettled claims - recognized based on claims of loss in an amount sufficient to cover future commitments, awaiting judicial decision, which amounts are determined by court- appointed experts and legal advisors that make assessments based on the insured amounts and technical regulations, taking into consideration the likelihood of unfavorable outcome to the insurance company;
Provision for claims incurred but not reported (IBNR) – recognized for the estimated amount of claims occurred for risks assumed in the portfolio but not reported.
II.II - Pension plan and individual life with living benefits – correspond to liabilities assumed such as retirement plans, disability, pension and annuity:
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 72 Mathematical provisions for benefits to be granted and benefits granted – correspond to commitments assumed with participants, but for which benefits are not yet due, and to those receiving the benefits;
Provision for insufficient contribution – recognized in case of insufficient mathematical provisions;
Provision for events incurred but not reported (IBNR) – recognized for the estimated amount of events occurred but not reported;
Provision for financial surplus – recognized at the difference between the contributions adjusted daily by the Investment Portfolio and the funds guaranteeing them, according to the plan’s regulation;
Provision for financial variation – recognized according to the methodology provided for in the Technical Actuarial Note in order to guarantee that the financial assets are sufficient to cover mathematical provisions.
II.III- Capitalization
Mathematical provision for redemptions – represents capitalization certificates received to be redeemed;
Provision for raffle contingencies – recognized according to the methodology provided for in the Technical Actuarial Note to cover the Provision for raffles in the event of insufficient funds.
n) Contingent assets and liabilities and legal liabilities – tax and social security - assessed, recognized and disclosed according to the provisions set forth in CMN Resolution No. 3,535 of January 31, 2008.
I - Contingent assets and liabilities
Refer to potential rights and obligations arising from past events, the occurrence of which is dependent upon future events.
Contingent assets - not recognized, except upon evidence ensuring a high reliability level of realization, usually represented by claims awarded a final and unappealable judgment and confirmation of the recoverability of the claim through receipt of amounts or offset against another liability;
Contingent liabilities - basically arise from administrative proceedings and lawsuits, inherent in the normal course of business, filed by third parties, former employees and governmental bodies, in connection with civil, labor, tax and social security lawsuits and other risks. These contingencies are calculated based on conservative practices, being usually recorded based on the opinion of legal advisors and considering the probability that financial resources shall be required for settling the obligation, the amount of which may be estimated with sufficient certainty. Contingencies are classified either as probable, for which provisions are recognized; possible, which are disclosed but not recognized; or remote, for which recognition or disclosure are not required. Any contingent amounts are measured through the use of models and criteria which allow their adequate measurement, in spite of the uncertainty of their term and amounts.
Escrow deposits are restated in accordance with the current legislation.
Contingencies guaranteed by indemnity clauses in privatization processes and with liquidity are only recognized upon judicial notification with simultaneous recognition of receivables, without any effect on results.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 73 II - Legal liabilities – tax and social security
Represented by amounts payable related to tax liabilities, the legality or constitutionality of which are subject to administrative or judicial defense, recognized at the full amount under discussion.
Liabilities and related escrow deposits are adjusted in accordance with the current legislation.
o) Taxes - these provisions are calculated according to current legislation at the rates shown below, for effects of the related calculation bases.
Income tax 15.00% Additional income tax 10.00% Social contribution (1) 15.00% PIS (2) 0.65% COFINS (2) 4.00% ISS up to 5.00% (1) As from May 1, 2008, for financial subsidiaries and equivalent companies, the rate was changed from 9% to 15%, as provided for in articles 17 and 41 of Law No. 11,727 of June 24, 2008. For non-financial and social security subsidiaries, the rate remained at 9%. (2) For non-financial subsidiaries that fall into the non-cumulative calculation system, the PIS rate is 1.65% and COFINS rate is 7.6%.
The changes introduced by Laws No. 11,638 and No. 11,941 (articles 37 and 38), which modified the criterion for recognizing revenues, costs and expenses, computed to determine the net income for the year, did not produce effects for purposes of determining the taxable income of companies that opt for the Transition Tax Regime (RTT), so for tax purposes the rules effective on December 31, 2007 were followed. The tax effect arising from the adoption of such rules is recorded, for accounting purposes, in the corresponding deferred assets and liabilities.
p) Deferred income – this refers to unexpired interest received in advance that is recognized in income as earned, and the negative goodwill on acquisition of investments arising from expected future losses, which has not been absorbed in the consolidation process.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 74 NOTE 5 – CASH AND CASH EQUIVALENTS
For purposes of Statement of Cash Flows, cash and cash equivalents of ITAÚ UNIBANCO HOLDING CONSOLIDATED are composed of the following:
09/30/2009 09/30/2008 Cash and cash equivalents 10,325,257 6,020,651 Interbank deposits 3,387,723 7,038,298 Securities purchased under agreements to resell – Funded position 41,106,381 9,721,043 TOTAL 54,819,361 22,779,992
In ITAÚ UNIBANCO HOLDING it is composed of the following:
09/30/2009 09/30/2008 Cash and cash equivalents 197 147 Securities purchased under agreements to resell – Funded position 142,686 184,147 TOTAL 142,883 184,294
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 75 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
NOTE 6 - INTERBANK INVESTMENTS
09/30/2009 09/30/2008
0 - 30 31 - 180 181 - 365 Over 365 Total % Total % Money market 93,159,760 23,875,825 407,582 1,101,257 118,544,424 85.9 74,282,795 85.9 Funded position (*) 43,692,487 15,275,215 406,180 1,101,257 60,475,139 43.7 23,788,899 27.5 Financed position 49,377,804 5,300,407 - - 54,678,211 39.6 49,811,640 57.6 With free movement - 5,295,928 - - 5,295,928 3.8 825,796 1.0 Without free movement 49,377,804 4,479 - - 49,382,283 35.8 48,985,844 56.6 Short position 89,469 3,300,203 1,402 - 3,391,074 2.5 682,256 0.8 Money market – Assets Guaranteeing Technical Provisions - SUSEP 7,738 281,562 376,855 2,156,948 2,823,103 2.0 804,407 0.9 Interbank deposits 4,407,159 7,871,186 3,468,806 849,529 16,596,680 12.0 11,404,198 13.2 TOTAL 97,574,657 32,028,573 4,253,243 4,107,734 137,964,207 86,491,400 % per maturity term 70.7 23.2 3.1 3.0
- September0 TOTAL – 09/30/2008 66,207,485 15,937,884 2,447,245 1,898,786 86,491,400 % per maturity term 76.5 18.5 2.8 2.2 (*) Includes R$ 12,239,299 (R$ 13,502,433 at 09/30/2008) related to money market with free movement, in which securities are basically restricted to guarantee transactions at the BM&F Bovespa S.A. - Bolsa de Valores, Mercadorias e Futuros (Securities, Commodities and Futures Exchange) and the Central Bank of Brazil (BACEN).
In ITAÚ UNIBANCO HOLDING at 09/30/2009, portfolio is composed of Money market – funded position falling due in up to 30 days amounting to R$ 142,686 (R$ 184,148 at 09/30/2008) and Interbank deposits from 31 to 181 days amounting to R$ 6,687,841 (R$ 400,202 at 09/30/2008). 76 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
NOTE 7 - SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS/LIABILITIES)
See below the composition by Securities and Derivatives type, maturity and portfolio already adjusted to their respective market values.
a) Summary per maturity
09/30/2009 09/30/2008 Provision for adjustment to market value with impact Cost on: Market value% 0 - 30 31 - 90 91 - 180 181 - 365 366 - 720 Over 720 days Market value Stockholders' Results equity GOVERNMENT SECURITIES – DOMESTIC 44,483,861 92,369 434,927 45,011,157 36.7 4,223,463 700,320 7,640,077 3,233,209 8,172,965 21,041,123 22,531,234 Financial Treasury Bills 16,519,090 2,700 (806) 16,520,984 13.5 311 601,471 839,972 969,698 3,189,683 10,919,849 7,918,221 National Treasury Bills 14,560,963 52,369 19,376 14,632,708 11.9 4,018,950 - 6,169,913 1,478,353 2,965,492 - 7,181,187 National Treasury Notes 10,249,412 36,491 223,157 10,509,060 8.6 13,684 91,195 604,423 530,103 1,394,607 7,875,048 5,782,652 National Treasury Notes - M ------12,958 National Treasury/Securitization 599,588 609 (59,126) 541,071 0.4 2,062 3,967 14,714 182,392 26,743 311,193 186,325 Brazilian External Debt Bonds 2,523,678 161 251,913 2,775,752 2.3 187,465 3,687 11,055 72,466 595,463 1,905,616 1,416,533 Investment in Non-exclusive Funds 991 - - 991 0.0 991 - - - - - 33,358 Other 30,139 39 413 30,591 0.0 - - - 197 977 29,417 - GOVERNMENT SECURITIES – ABROAD 9,356,160 32,683 58,489 9,447,332 7.7 812,256 2,391,242 1,957,537 2,701,996 1,016,492 567,809 11,911,466 Portugal 26,779 - 636 27,415 0.0 - - - 27,415 - - 245,510 Austria 447,892 - 4,862 452,754 0.4 230,420 4,834 217,500 - - - 2,822,488 Argentina 195,447 880 - 196,327 0.2 25,710 30,415 13,258 54,714 6,257 65,973 67,563 Central Bank 70,858 539 - 71,397 0.1 25,710 15,915 3 27,364 1,234 1,171 47,136 National Treasury 124,589 341 - 124,930 0.1 - 14,500 13,255 27,350 5,023 64,802 20,427 Russia 278 1 - 279 0.0 - - - - - 279 - - September0 Denmark 1,824,976 - 25,989 1,850,965 1.5 - 316,197 282,321 1,075,119 177,328 - 1,795,685 Spain 1,867,353 - 6,776 1,874,129 1.5 - 869,482 - 1,004,647 - - 3,725,429 Korea 1,487,978 - 15,345 1,503,323 1.2 219,672 568,323 - - 715,328 - 1,236,113 Chile 1,456,686 851 5,835 1,463,372 1.2 219,944 294,735 474,435 422,622 24,740 26,896 449,955 Paraguay 282,157 - 2 282,159 0.2 34,703 45,152 32,787 105,700 60,139 3,678 - Uruguay 457,371 42 (301) 457,112 0.4 81,666 262,100 66,261 11,323 13,507 22,255 120,322 United States 1,050,460 30,901 491 1,081,852 0.9 - - 769,193 - 18,108 294,551 900,093 Norway 104,106 - (2,513) 101,593 0.1 - - 101,593 - - - 539,416 Mexico 8,606 (26) - 8,580 0.0 2 - 51 - 634 7,893 5,925 Italy 131,225 - 1,359 132,584 0.1 - - - - - 132,584 - Other 14,846 34 8 14,888 0.0 139 4 138 456 451 13,700 2,967 CORPORATE SECURITIES 22,803,891 205,585 220,068 23,229,544 18.8 6,825,825 1,932,125 1,352,746 2,702,592 2,255,398 8,160,858 18,197,423 Eurobonds and other 2,282,800 4,008 54,174 2,340,982 1.9 45,901 84,796 201,180 168,369 246,899 1,593,837 3,820,023 Bank Deposit Certificates 2,296,519 - (1) 2,296,518 1.9 23,687 253,480 548,677 429,462 476,019 565,193 1,823,565 Shares 3,385,407 194,475 67,812 3,647,694 3.0 3,647,694 - - - - - 2,501,566 Debentures 5,999,746 (17,727) (2,534) 5,979,485 4.6 449,806 408,440 390,807 986,944 1,320,115 2,423,373 3,428,437 Promissory Notes 2,784,660 - 1,725 2,786,385 2.3 508,945 1,148,942 161,199 967,299 - - 1,824,819 Mortgage Notes ------39 Quotas of funds 2,114,229 22,774 11,535 2,148,538 1.8 2,144,911 - 3,627 - - - 2,623,726 Fixed income 880,471 - 6,045 886,516 0.7 882,889 - 3,627 - - - 1,469,496 Credit rights 804,381 - - 804,381 0.7 804,381 - - - - - 1,019,196 Other 429,377 22,774 5,490 457,641 0.4 457,641 - - - - - 135,034 Securitized real estate loans 3,921,826 2,055 87,124 4,011,005 3.3 4,856 35,773 47,248 142,352 212,365 3,568,411 2,175,239 Other 18,704 - 233 18,937 0.0 25 694 8 8,166 - 10,044 9 PGBL/VGBL FUND QUOTAS (1) 36,403,697 - - 36,403,697 29.7 36,403,697 - - - - - 21,893,675 SUBTOTAL - SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS 113,047,609 330,637 713,484 114,091,730 93.1 48,265,241 5,023,687 10,950,360 8,637,797 11,444,855 29,769,790 74,533,798 Trading securities 68,496,050 330,637 - 68,826,687 56.2 41,025,062 930,209 6,612,395 3,194,402 5,133,382 11,931,237 49,349,814 Available-for-sale securities 41,692,904 - 713,484 42,406,388 34.6 7,240,060 4,090,072 4,326,419 5,410,713 6,013,380 15,325,744 23,993,275 Held-to-maturity securities (2) 2,858,655 - - 2,858,655 2.3 119 3,406 11,546 32,682 298,093 2,512,809 1,190,709 DERIVATIVE FINANCIAL INSTRUMENTS 7,868,729 615,853 - 8,484,582 7.1 2,313,244 1,303,992 1,648,058 1,314,786 661,634 1,242,868 7,073,031 TOTAL SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS) 120,916,338 946,490 713,484 122,576,312 100.0 50,578,485 6,327,679 12,598,418 9,952,583 12,106,489 31,012,658 81,606,829 41.2% 5.2% 10.3% 8.1% 9.9% 25.3% TOTAL SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS) 122,576,312 DERIVATIVE FINANCIAL INSTRUMENTS (LIABILITIES) (6,704,725) (753,678) - (7,458,403) 100.0 (2,222,490) (1,228,773) (1,255,194) (855,677) (813,505) (1,082,764) (5,093,670)
77 (1) The PGBL and VGBL plans securities portfolios, the ownership and embedded risks of which are the customers’ responsibility, is recorded as securities, as determined by SUSEP, with a contra-entry to liabilities in the Pension Plan Technical Provisions account. (2) Unrecorded positive adjustment to market value in the amount of R$ 403,366 (R$ 173,150 at 09/30/2008), according to Note 7e. Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
b) Summary by portfolio
09/30/2009 Restricted to Derivative Assets Repurchase Pledging of financial guaranteeing Total Own portfolio agreements guarantees (1) Central Bank (2) instruments technical GOVERNMENT SECURITIES – DOMESTIC 14,752,571 7,541,210 7,225,053 9,469,767 - 6,022,556 45,011,157 Financial Treasury Bills 2,395,881 1,747,401 3,459,584 7,878,022 - 1,040,096 16,520,984 National Treasury Bills 8,436,368 2,534,375 2,313,354 1,194,653 - 153,958 14,632,708 National Treasury Notes 2,020,736 1,810,615 1,452,115 397,092 - 4,828,502 10,509,060 National Treasury/Securitization 541,071 - - - - - 541,071 Brazilian External Debt Bonds 1,326,933 1,448,819 - - - - 2,775,752 Investments in Non-exclusive Funds 991 - - - - - 991 Other 30,591 - - - - - 30,591 GOVERNMENT SECURITIES – ABROAD 6,467,416 820,930 2,155,020 - - 3,966 9,447,332 Portugal 27,415 - - - - - 27,415 Austria 230,420 - 222,334 - - - 452,754 Argentina 102,259 94,068 - - - - 196,327 Central Bank 43,561 27,836 - - - - 71,397 National Treasury 58,698 66,232 - - - - 124,930 Russia 279 - - - - - 279 Denmark 990,655 - 860,310 - - - 1,850,965 Spain 1,303,764 - 570,365 - - - 1,874,129 Korea 1,022,553 - 480,770 - - - 1,503,323 - September0 Chile 1,356,148 103,258 - - - 3,966 1,463,372 Paraguay 282,159 - - - - - 282,159 Uruguay 457,112 - - - - - 457,112 United States 438,892 621,719 21,241 - - - 1,081,852 Norway 101,593 - - - - - 101,593 Mexico 6,695 1,885 - - - - 8,580
Italy 132,584 - - - - - 132,584 Other 14,888 - - - - - 14,888 CORPORATE SECURITIES 19,946,304 364,034 677,152 - - 2,242,054 23,229,544 Eurobonds and others 1,953,190 364,034 - - - 23,758 2,340,982 Bank Deposit Certificates 949,547 - 15,976 - - 1,330,995 2,296,518 Shares 3,647,470 - 224 - - - 3,647,694 Debentures 4,827,658 - 375,572 - - 776,255 5,979,485 Promissory Notes 2,760,423 - - - - 25,962 2,786,385 Quotas of funds 1,803,484 - 285,380 - - 59,674 2,148,538 Fixed income 601,136 - 285,380 - - - 886,516 Credit rights 745,355 - - - 59,026 804,381 Other 456,993 - - - - 648 457,641 Securitized real estate loans 3,985,602 - - - - 25,403 4,011,005 Other 18,930 - - - - 7 18,937 PGBL/VGBL FUND QUOTAS - - - - - 36,403,697 36,403,697 SUBTOTAL - SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS 41,166,291 8,726,174 10,057,225 9,469,767 - 44,672,273 114,091,730 Trading securities 12,575,883 5,658,754 5,398,405 5,204,455 - 39,989,190 68,826,687 Available-for-sale securities 28,193,976 2,978,515 4,615,677 4,265,312 - 2,352,908 42,406,388 Held-to-maturity securities 396,432 88,905 43,143 - - 2,330,175 2,858,655 DERIVATIVE FINANCIAL INSTRUMENTS - - - - 8,484,582 - 8,484,582 TOTAL SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS) 41,166,291 8,726,174 10,057,225 9,469,767 8,484,582 44,672,273 122,576,312 TOTAL SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS) – 09/30/2008 29,337,238 2,329,895 8,638,913 7,975,038 7,073,031 26,252,714 81,606,829 (1) Represent securities deposited with Contingent Liabilities (Note 12b), Stock Exchanges and the Clearing House for the Custody and Financial Settlement of Securities. 78 (2) Represent securities in compulsory deposits. Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
c) Trading securities
See below the composition of the portfolio of trading securities by type, stated at cost and market value and by maturity term.
09/30/2009 09/30/2008 Adjustment to Over 720 Cost market value Market value % 0 - 30 31 - 90 91 - 180 181 - 365 366 - 720 Market value days (in results) GOVERNMENT SECURITIES – DOMESTIC 24,773,108 92,369 24,865,477 36.1 2,632,130 555,152 5,082,047 2,517,596 4,088,932 9,989,620 18,979,119 Financial Treasury Bills 9,142,136 2,700 9,144,836 13.3 311 517,421 229,953 574,149 303,627 7,519,375 6,386,555 National Treasury Bills 10,752,875 52,369 10,805,244 15.7 2,569,427 - 4,336,422 1,332,106 2,567,289 - 6,729,500 National Treasury Notes 4,301,170 36,491 4,337,661 6.3 12,843 33,084 489,916 416,019 1,044,011 2,341,788 4,899,430 National Treasury/Securitization 283,870 609 284,479 0.4 2,062 3,967 14,714 182,392 26,743 54,601 88,558 Brazilian External Debt Bonds 291,034 161 291,195 0.4 46,496 680 11,042 12,930 147,262 72,785 841,718 Investments in Non-exclusive Funds 991 - 991 0.0 991 - - - - - 33,358 Other 1,032 39 1,071 0.0 - - - - - 1,071 - GOVERNMENT SECURITIES – ABROAD 1,488,214 32,683 1,520,897 2.1 82,946 76,671 895,047 67,213 11,679 387,341 1,839,404 Argentina 194,874 880 195,754 0.3 25,710 30,415 13,258 54,714 6,257 65,400 66,641 Central Bank 70,858 539 71,397 0.1 25,710 15,915 3 27,364 1,234 1,171 46,214 National Treasury 124,016 341 124,357 0.2 - 14,500 13,255 27,350 5,023 64,229 20,427 Russia 278 1 279 0.0 - - - - - 279 - Spain ------447,710
- September0 Korea ------399,096 Chile 228,833 851 229,684 0.3 57,095 43,396 112,514 12,043 3,327 1,309 36,508 Uruguay 8,249 42 8,291 0.0 - 2,856 - - 1,010 4,425 117 United States 1,032,736 30,901 1,063,637 1.5 - - 769,086 - - 294,551 880,440 Mexico 8,606 (26) 8,580 0.0 2 - 51 - 634 7,893 5,925 Other 14,638 34 14,672 0.0 139 4 138 456 451 13,484 2,967 CORPORATE SECURITIES 5,831,031 205,585 6,036,616 8.9 1,906,289 298,386 635,301 609,593 1,032,771 1,554,276 6,637,616 Eurobonds and other 472,235 4,008 476,243 0.7 32,001 360 58,272 23,129 2,900 359,581 1,101,883 Bank Deposit Certificates 2,154,082 - 2,154,082 3.3 - 231,765 548,677 428,515 475,879 469,246 1,792,024 Shares 793,435 194,475 987,910 1.4 987,910 - - - - - 622,538 Debentures 1,491,482 (17,727) 1,473,755 2.1 - 43,229 28,000 157,265 548,059 697,202 1,238,252 Promissory Notes 18,211 - 18,211 0.0 - 18,211 - - - - 176,882 Quotas of funds 863,484 22,774 886,258 1.3 886,258 - - - - - 1,670,618 Fixed income 729,159 - 729,159 1.1 729,159 - - - - - 1,347,163 Credit rights 77,259 - 77,259 0.1 77,259 - - - - - 261,166 Other 57,066 22,774 79,840 0.1 79,840 - - - - - 62,289 Securitized real estate loans 38,102 2,055 40,157 0.1 120 4,821 352 684 5,933 28,247 35,419 PGBL/VGBL FUND QUOTAS 36,403,697 - 36,403,697 52.9 36,403,697 - - - - - 21,893,675 Total 68,496,050 330,637 68,826,687 100.0 41,025,062 930,209 6,612,395 3,194,402 5,133,382 11,931,237 49,349,814 % per maturity term 59.6%1.4%9.6%4.6%7.5%17.3% Total 09/30/2008 49,415,217 (65,403) 49,349,814 100.0 24,569,740 458,334 2,264,003 4,547,076 5,734,631 11,776,030 % per maturity term 50.9% 0.9% 4.5% 9.2% 11.3% 23.2%
At September 30, 2009, in ITAÚ UNIBANCO HOLDING the portfolio is composed of Government Securities – Financial Treasury Bills amounting to R$ 5.198 with maturity over 365 days. 79 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
d) Available-for-sale securities
See below the composition of the portfolio of available-for-sale securities by type, stated at cost and market value and by maturity term.
09/30/2009 09/30/2008 Adjustment to market value Over 720 Cost (in Market value % 0 - 30 31 - 90 91 - 180 181 - 365 366 - 720 Market value days stockholders' equity) GOVERNMENT SECURITIES – DOMESTIC 17,127,743 434,927 17,562,670 41.4 1,591,333 142,161 2,549,597 707,473 3,891,889 8,680,217 2,679,424 Financial Treasury Bills 7,376,954 (806) 7,376,148 17.4 - 84,050 610,019 395,549 2,886,056 3,400,474 1,531,666 National Treasury Bills 3,808,088 19,376 3,827,464 9.0 1,449,523 - 1,833,491 146,247 398,203 - 451,687 National Treasury Notes 3,607,297 223,157 3,830,454 9.0 841 58,111 106,074 105,944 212,730 3,346,754 285,604 National Treasury/Securitization 315,718 (59,126) 256,592 0.6 - - - - - 256,592 97,767 Brazilian External Debt Bonds 1,990,579 251,913 2,242,492 5.3 140,969 - 13 59,536 393,923 1,648,051 312,700 Other 29,107 413 29,520 0.1 - - - 197 977 28,346 - GOVERNMENT SECURITIES – ABROAD 7,850,982 58,489 7,909,471 18.6 729,310 2,314,571 1,062,341 2,634,783 1,004,813 163,653 10,052,882 Portugal 26,779 636 27,415 0.1 - - - 27,415 - - 245,510 Austria 447,892 4,862 452,754 1.1 230,420 4,834 217,500 - - - 2,822,488 Argentina 573 - 573 0.0 - - - - - 573 922 Central Bank ------922 National Treasury 573 - 573 0.0 - - - - - 573 - Denmark 1,824,976 25,989 1,850,965 4.4 - 316,197 282,321 1,075,119 177,328 - 1,795,685 Spain 1,867,353 6,776 1,874,129 4.4 - 869,482 - 1,004,647 - - 3,277,719 Korea 1,487,978 15,345 1,503,323 3.5 219,672 568,323 - - 715,328 - 837,017
- September0 Chile 1,227,853 5,835 1,233,688 2.9 162,849 251,339 361,921 410,579 21,413 25,587 413,447 Paraguay 282,157 2 282,159 0.7 34,703 45,152 32,787 105,700 60,139 3,678 - Uruguay 43 2,158 (301) 431,857 1.0 81,666 259,244 66,112 11,323 12,497 1,015 101,025 United States 17,724 491 18,215 0.0 - - 107 - 18,108 - 19,653 Norway 104,106 (2,513) 101,593 0.2 - - 101,593 - - - 539,416 Italy 131,225 1,359 132,584 0.3 - - - - - 132,584 - Other 208 8 216 0.0 - - - - - 216 - CORPORATE SECURITIES 16,714,179 220,068 16,934,247 39.9 4,919,417 1,633,340 714,481 2,068,457 1,116,678 6,481,874 11,260,969 Eurobonds and other 1,601,257 54,174 1,655,431 3.9 13,900 84,436 140,280 121,392 151,520 1,143,903 2,495,457 Bank Deposit Certificate 142,437 (1) 142,436 0.3 23,687 21,715 - 947 140 95,947 31,541 Shares 2,591,963 67,812 2,659,775 6.3 2,659,775 - - - - - 1,879,028 Debentures 4,466,516 (2,534) 4,463,982 10.5 449,697 364,991 362,471 828,985 758,586 1,699,252 2,123,021 Promissory Notes 2,766,449 1,725 2,768,174 6.5 508,945 1,130,731 161,199 967,299 - - 1,647,937 Mortgage Notes ------39 Quotas of funds 1,250,744 11,535 1,262,279 3.1 1,258,652 - 3,627 - - - 953,108 Fixed income 151,312 6,045 157,357 0.4 153,730 - 3,627 - - - 122,333 Credit rights 727,122 - 727,122 1.8 727,122 - - - - - 758,030 Other 372,310 5,490 377,800 0.9 377,800 - - - - - 72,745 Securitized real estate loans 3,876,288 87,124 3,963,412 9.3 4,736 30,952 46,896 141,668 206,432 3,532,728 2,130,831 Other 18,525 233 18,758 0.0 25 515 8 8,166 - 10,044 7 TOTAL 41,692,904 713,484 42,406,388 100.0 7,240,060 4,090,072 4,326,419 5,410,713 6,013,380 15,325,744 23,993,275 Adjustments of securities reclassified in prior years to the held-to- maturity category 16,604 17.1% 9.6% 10.2% 12.8% 14.2% 36.1% Deferred taxes (170,370) Accounting adjustment - Hedge - Circular No. 3,082 (281,064) Minority interests in subsidiaries 20,940 Adjustment of securities of unconsolidated affiliates (52,766) ADJUSTMENT TO MARKET VALUE – SECURITIES – 09/30/2009 246,828 TOTAL 09/30/2008 24,101,475 (108,200) 23,993,275 100.0 4,522,745 2,842,926 2,551,816 4,278,376 4,982,595 4,814,817 Adjustments of securities reclassified in prior years to the held-to- maturity category 20,169 18.9% 11.8% 10.6% 17.8% 20.8% 20.1% Deferred taxes 23,816 Minority interests in subsidiaries 7,296 Adjustment of securities of unconsolidated affiliates (19,033) ADJUSTMENT TO MARKET VALUE – SECURITIES – 09/30/2008 (75,952) 80 At September 30, 2009, in ITAÚ UNIBANCO HOLDING the portfolio is composed of Government Securities – National Treasury Notes amounting to R$ 24,749 (R$ 23,878 at 09/30/2008) with maturity over 365 days. Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
e) Held-to-maturity securities
See below the composition of the portfolio of held-to-maturity securities by type, stated at cost by maturity term. In the carrying value, not considered in results, are the amounts of R$ 16,604 (R$ 20,169 at 09/30/2008) included at September 30, 2009, relating to market adjustment of the reclassified securities at December 31, 2003. Securities classified under this type, if stated at market value, would present a positive adjustment of R$ 403,366 (R$ 173,150 at 09/30/2008) at September 30, 2009. 09/30/2009 09/30/2008 Carrying Over 720 Carrying % 0 - 30 31 - 90 91 - 180 181 - 365 366 - 720 value days value GOVERNMENT SECURITIES – DOMESTIC 2,583,010 90.3 - 3,007 8,433 8,140 192,144 2,371,286 872,691 National Treasury Notes (1) 2,340,945 81.8 - - 8,433 8,140 137,866 2,186,506 597,618 National Treasury Notes – M (2) ------12,958 Brazilian External Debt Bonds 242,065 8.5 - 3,007 - - 54,278 184,780 262,115 GOVERNMENT SECURITIES – ABROAD 16,964 0.6 - - 149 - - 16,815 19,180 Uruguay 16,964 0.6 - - 149 - - 16,815 19,180 CORPORATE SECURITIES 258,681 9.1 119 399 2,964 24,542 105,949 124,708 298,838 Eurobonds and other 209,308 7.1 - - 2,628 23,848 92,479 90,353 222,683 Debentures (1) 41,748 1.5 109 220 336 694 13,470 26,919 67,164 Securitized real estate loans (1) 7,436 0.5 - - - - - 7,436 8,989 Other 189 - 10 179 - - - - 2 Total 2,858,655 100.0 119 3,406 11,546 32,682 298,093 2,512,809 1,190,709 % per maturity term 0.0% 0.2% 0.4% 1.1% 10.4% 87.9% Total 09/30/2008 1,190,709 100.0 9,251 4,214 11,842 38,419 18,292 1,108,691 % per maturity term 0.8% 0.4% 1.0% 3.2% 1.5% 93.1% - September0 (1) Includes investments of Itaú Vida e Previdência S.A. in the amount of R$ 1,259,140 (R$ 583,325 at 09/30/2008). (2) Refers to securities issued in nominative and non-disposable way.
f) Realized and unrealized gain of securities portfolio
01/01 to 01/01 to
09/30/2009 09/30/2008 Gain (loss) - Trading securities 1,022,505 (655,443) Gain (loss) – Available-for-sale securities 324,296 45,556 Total realized gain 1,346,801 (609,887) Adjustment to market value of trading securities 330,637 (22,164) Total 1,677,438 (632,051)
g) Reclassification of securities (article 5 of BACEN Circular No. 3,068, of 11/08/2001) Management sets forth guidelines to classify securities. The classification of the current portfolio of securities, as well as the securities purchased in the period, are periodically and systematically evaluated based on such guidelines.
As set forth in Article 5 of BACEN Circular No. 3,068, of November 8, 2008, the revaluation regarding the classification of securities can only be made upon preparation of trial balances for six-month periods. In addition, the transfer from the “held-to-maturity” into the other categories can only occur in view of an isolated, unusual, nonrecurring and unexpected reason, which has occurred after the classification date.
81 h) Derivative financial instruments
The globalization of the markets in recent years has resulted in a high level of sophistication in the financial products used. As a result of this process, there has been an increasing demand for derivative financial instruments to manage market risks, mainly arising from fluctuations in interest and exchange rates, commodities and other asset prices. Accordingly, ITAU UNIBANCO HOLDING and its subsidiaries operate in the derivative markets for meeting the growing needs of their clients, as well as carrying out their risk management policy. Such policy is based on the use of derivative instruments to minimize the risks resulting from commercial and financial operations.
The derivative financial instruments’ business with clients is carried out after the approval of credit limits. The process of limit approval takes into consideration potential stress scenarios.
Knowing the client, the sector in which it operates and its risk appetite profile, in addition to providing information on the risks involved in the transaction and the negotiated conditions, ensures transparency in the relationship between the parties and supply of a product that better meet the needs of the client in view of its operating characteristics.
The derivative transactions carried out by ITAÚ UNIBANCO HOLDING and its subsidiaries with customers are neutralized in order to eliminate market risks.
Most derivative contracts traded by the institution with clients in Brazil are swap, forward, option and futures contracts, which are registered at the BM&F Bovespa or at the CETIP – S.A. – OTC Clearing House (CETIP). Overseas transactions are carried out with futures, forwards, options and swaps with registration mainly in the Chicago, New York and London Exchanges. It should be emphasized that there are over-the- counter operations, but their risks are low as compared to the institutions’ total. Noteworthy is also the fact that there are no structured operations based on subprime assets and all operations are based on risk factors traded at stock exchanges.
The main risk factors of the derivatives, assumed at September 30, 2009, were related to the foreign exchange rate, interest rate, commodities, U.S. dollar coupon, Reference Rate coupon, Libor and variable income. The management of these and other market risk factors is supported by the infrastructure of sophisticated statistical and deterministic models. Based on this management model, the institution, with the use of transactions involving derivatives, has been able to optimize the risk-return ratios, even under highly volatile situations.
Most derivatives included in the institution’s portfolio are traded at stock exchanges. The prices disclosed by stock exchanges are used for these derivatives, except in cases in which the low representativeness of price due to illiquidity of a specific contract is identified. Derivatives typically precified like this are future contracts. Likewise, there are other instruments whose quotations (fair prices) are directly disclosed by independent institutions and which are precified based on this direct information. A great part of the Brazilian government securities, highly-liquid international (public and private) securities and shares fit into this situation.
For derivatives whose prices are not directly disclosed by stock exchanges, fair prices are obtained by pricing models which use market information, deducted based on prices disclosed for higher liquidity assets. Interest and market volatility curves which provide entry data for the models are extracted from those prices. Over-the-counter derivatives, forward contracts and securities without much liquidity are in this situation.
The total value of margins pledged in guarantee was R$ 15,513,710 and was basically composed of government securities.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 82 Balance sheet Memorandum Account account receivable / Adjustment to market Market value Notional amount (received) (payable) / value (in results) paid 09/30/2009 09/30/2008 09/30/2009 09/30/2009 09/30/2009 09/30/2008 Futures contracts 196,897,503 98,199,446 143,100 (25,706) 117,394 358,267 Purchase commitments 94,894,623 23,272,120 (39,277) (1,839) (41,116) (113,676) Foreign currency 4,206,487 6,840,919 (2,435) (492) (2,927) (103,547) Interbank market 83,382,343 8,211,141 (6,017) 4,738 (1,279) 26,218 Indices 6,669,056 7,954,509 (30,866) 2,433 (28,433) (34,973) Securities 578,393 156,182 - (3) (3) - Other 58,344 109,369 41 (8,515) (8,474) (1,374) Commitments to sell 102,002,880 74,927,326 182,377 (23,867) 158,510 471,943 Foreign currency 14,091,703 10,389,746 38,867 (27,883) 10,984 171,144 Interbank market 62,176,146 46,032,046 9,312 (1,776) 7,536 (67,593) Indices 23,445,816 17,707,680 134,251 (5,110) 129,141 361,875 Securities - 608,854 - - - (212) Other 2,289,215 189,000 (53) 10,902 10,849 6,729 Swap contracts 1,020,189 (43,037) 977,152 (294,587) Asset position 81,227,999 60,767,003 2,687,936 592,677 3,280,613 1,711,926 Foreign currency 8,526,966 13,876,053 152,636 29,501 182,137 420,702 Interbank market 33,826,515 27,701,843 1,941,266 (27,919) 1,913,347 793,737 Fixed rate 19,346,183 8,486,354 179,266 179,573 358,839 140,289 Floating rate 6,757,409 - 72 517 589 - Indices 11,999,961 9,760,684 408,018 410,524 818,542 343,582 Securities 14,131 - 5,443 358 5,801 - Other 756,834 942,069 1,235 123 1,358 13,616 Liability position 80,207,810 61,166,467 (1,667,747) (635,714) (2,303,461) (2,006,513) Foreign currency 12,107,980 15,838,447 (265,546) (22,849) (288,395) (872,038) Interbank market 21,077,109 21,485,449 (815,671) 81,838 (733,833) (652,214) Fixed rate 17,617,625 11,954,939 (196,909) (284,544) (481,453) (108,732) Floating rate 13,846,479 - (14,504) 4,338 (10,166) - Indices 14,702,797 10,808,049 (370,334) (413,604) (783,938) (363,854) Securities 96,255 - (2) 2 - - Other 759,565 1,079,583 (4,781) (895) (5,676) (9,675) Option contracts 1,377,138,277 90,201,442 136,811 (121,481) 15,330 (483,205) Purchase commitments – long position 453,889,168 21,244,566 1,257,312 (374,326) 882,986 737,334 Foreign currency 25,179,137 12,000,870 675,397 (466,035) 209,362 572,106 Interbank market 293,226,233 2,177,700 223,911 (23,603) 200,308 56,000 Floating rate 33,322 - 117 (33) 84 - Indices 134,536,543 3,976,715 266,188 108,906 375,094 23,326 Securities 803,095 398,854 79,562 5,908 85,470 83,775 Other 110,838 2,690,427 12,137 531 12,668 2,127 Commitments to sell – long position 267,943,787 20,653,246 1,012,443 408,492 1,420,935 580,955 Foreign currency 16,541,202 3,815,186 344,839 171,319 516,158 12,951 Interbank market 154,907,306 - 167,103 (7,926) 159,177 - Indices 94,960,017 15,482,004 105,667 234,922 340,589 150,547 Securities 1,308,084 1,190,264 380,883 (4,000) 376,883 395,777 Other 227,178 165,792 13,951 14,177 28,128 21,680 Purchase commitments – short position 341,033,653 35,334,215 (1,341,981) 417,175 (924,806) (1,511,134) Foreign currency 24,681,121 23,959,260 (781,412) 518,754 (262,658) (1,343,731) Interbank market 191,828,427 2,467,700 (184,840) (11,749) (196,589) (61,112) Indices 123,504,765 5,350,209 (347,630) (89,394) (437,024) (67,324) Securities 916,226 670,873 (16,167) (5,665) (21,832) (33,039) Other 103,114 2,886,173 (11,932) 5,229 (6,703) (5,928) Commitments to sell – short position 314,271,669 12,969,415 (790,963) (572,822) (1,363,785) (290,360) Foreign currency 21,162,428 3,721,886 (502,740) (375,765) (878,505) (96,885) Interbank market 189,577,854 - (121,892) (20,034) (141,926) - Fixed rate 68,413 - (619) (8,516) (9,135) - Indices 103,184,048 8,853,943 (149,479) (170,824) (320,303) (144,805) Securities 191,508 337,031 (4,263) 2,345 (1,918) (38,718) Other 87,418 56,555 (11,970) (28) (11,998) (9,952) Forward contracts 1,563,600 3,180,590 518 24 542 1,495,689 Purchases receivable 297,902 112,066 297,687 7 297,694 111,134 Fixed rate 174,691 - 174,726 - 174,726 - Floating rate 123,006 - 122,957 - 122,957 - Other 205 112,066 4 7 11 111,134 Purchases payable 885 7,970 (297,751) 11 (297,740) (111,759) Fixed rate - - (174,726) - (174,726) - Floating rate - - (122,957) - (122,957) - Other 885 7,970 (68) 11 (57) (111,759) Sales receivable 1,264,813 3,060,554 1,264,583 (129) 1,264,454 1,497,340 Fixed rate 1,190,661 - 1,190,524 (135) 1,190,389 - Floating rate 73,546 - 73,477 - 73,477 - Other 606 3,060,554 582 6 588 1,497,340 Sales deliverable - - (1,264,001) 135 (1,263,866) (1,026) Fixed rate - - (1,190,524) 135 (1,190,389) - Floating rate - - (73,477) - (73,477) - Other - - - - - (1,026)
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 83 Balance sheet Adjustment to Memorandum account account receivable / market value (in Market value Notional amount (received) (payable) / results) paid 09/30/2009 09/30/2008 09/30/2009 09/30/2009 09/30/2009 09/30/2008 Credit derivatives 5,641,746 6,722,704 (76,550) (24,886) (101,436) (22,479) Asset position 3,185,191 6,270,516 14,852 7,930 22,782 28,541 Foreign currency 197,430 101,761 1,415 1,703 3,118 3,944 Fixed rate 2,954,838 6,168,755 13,322 4,625 17,947 24,597 Securities 10,365 - 14 609 623 - Other 22,558 - 101 993 1,094 - Liability position 2,456,555 452,188 (91,402) (32,816) (124,218) (51,020) Foreign currency - 97,411 (1,388) (1,616) (3,004) (2,917) Interbank market 50,000 - (284) (199) (483) - Fixed rate 2,406,555 354,777 (89,573) (29,515) (119,088) (48,103) Securities - - (87) (493) (580) - Other - - (70) (993) (1,063) - Forwards operations 12,710,194 24,221,945 (44,411) (1,482) (45,893) 436,317 Asset position 6,871,820 15,150,234 305,189 (14) 305,175 1,010,831 Foreign currency 6,172,672 14,158,210 272,243 - 272,243 1,006,633 Interbank market - 4,231 - - - 43 Fixed rate 239,509 26,363 28,479 (14) 28,465 992 Floating rate 432,967 - 3,496 - 3,496 - Indices 26,672 961,430 971 - 971 3,163 Liability position 5,838,374 9,071,711 (349,600) (1,468) (351,068) (574,514) Foreign currency 5,231,692 8,473,795 (333,427) (1,468) (334,895) (556,220) Interbank market 1,632 33,939 (143) - (143) (2,082) Fixed rate 112,516 168,036 (13,506) - (13,506) (14,373) Floating rate 465,862 - (1,773) - (1,773) - Indices 26,672 395,941 (751) - (751) (1,839) Swap with target flow 2,617,827 4,815,055 10,723 (52,493) (41,770) 35,363 Asset position 1,314,275 2,371,877 95,524 (48,313) 47,211 165,345 Foreign currency 606,589 887,713 33,288 (32,010) 1,278 86,995 Interbank market 602,491 892,630 62,236 (16,303) 45,933 35,808 Fixed rate 105,195 305,790 - - - 11,254 Floating rate - 143,418 - - - 876 Other - 142,326 - - - 30,412 Liability position 1,303,552 2,443,178 (84,801) (4,180) (88,981) (129,982) Foreign currency 983,649 1,146,615 (66,761) 7,623 (59,138) (3,721) Interbank market 290,990 731,728 (17,602) (11,686) (29,288) (415) Fixed rate 28,913 214,737 (438) (117) (555) (94,988) Floating rate - 230,539 - - - (852) Other - 119,559 - - - (30,006) Target flow of swap – foreign currency 3,746,618 16,224,950 (110,408) 158,997 48,589 576,450 Asset position 2,800,384 13,912,623 119,157 77,118 196,275 668,623 Foreign currency 2,795,090 12,649,185 119,157 77,118 196,275 668,623 Indices 5,294 - - - - - Other - 1,263,438 - - - - Liability position 946,234 2,312,327 (229,565) 81,879 (147,686) (92,173) Foreign currency 946,234 1,048,889 (229,565) 81,879 (147,686) (92,173) Other - 1,263,438 - - - - Other derivative financial instruments (*) 12,757,277 12,027,194 84,032 (27,761) 56,271 (122,454) Asset position 7,570,264 2,933,629 670,946 (21,883) 649,063 202,735 Foreign currency 4,939,085 2,390,916 560,968 17,199 578,167 185,088 Interbank market 745,908 - - 302 302 - Fixed rate 593 130,172 (2) 169 167 1,453 Other 1,884,678 412,541 109,980 (39,553) 70,427 16,194 Liability position 5,187,013 9,093,565 (586,914) (5,878) (592,792) (325,189) Foreign currency 4,318,202 8,621,960 (502,295) 6,318 (495,977) (302,364) Interbank market 765,525 - - (268) (268) - Fixed rate 100,596 442,309 (84,450) (11,947) (96,397) (21,200) Other 2,690 29,296 (169) 19 (150) (1,625) ASSETS 7,868,729 615,853 8,484,582 7,073,031 LIABILITIES (6,704,725) (753,678) (7,458,403) (5,093,670) TOTAL 1,164,004 (137,825) 1,026,179 1,979,361 Derivative contracts mature as follows (in days): Clearing 0 - 30 31 - 180 181 - 365 Over 365 09/30/2009 09/30/2008 Futures 29,006,001 95,334,860 30,656,003 41,900,639 196,897,503 98,199,446 Swaps 17,532,729 28,838,333 11,162,046 21,006,955 78,540,063 50,661,730 Options 408,879,609 532,154,775 326,047,777 110,056,116 1,377,138,277 90,201,442 Forwards 1,561,981 529 1,090 - 1,563,600 3,180,590 Credit derivatives 42,871 2,512,644 1,187,589 1,898,642 5,641,746 6,722,704 Forwards 3,332,858 5,596,939 2,116,820 1,663,577 12,710,194 24,221,945 Swaps with target flow 257,351 526,449 - 434,951 1,218,751 4,815,055 Target flow of swap 748,706 398,685 - 2,599,227 3,746,618 16,224,950 Other 3,047,712 5,121,640 1,509,918 3,078,007 12,757,277 12,027,194
At September 30, 2009, ITAÚ UNIBANCO HOLDING had derivative operations in the swap with target flow and target flow forward with 15 clients; these products not being totally exposed to an exchange rate of R$ 1.7781 per dollar, for settlement at maturity. Of these clients, 11 have AA, A or B risk rating.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 84 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
II- Derivative financial instruments
See below the composition of the Derivative Financial Instruments portfolio (assets and liabilities) by type of instrument, stated at cost, market value, and maturity term:
30/09/2009 09/30/2008 Adjustment to Over 720 Cost market value Market value % 0 - 30 31 - 90 91 - 180 181 - 365 366 - 720 Market value days (in results) ASSETS Futures 143,100 (25,706) 117,394 1.4 6,417 124,068 (3,320) (16,392) 5,563 1,058 358,267 BM&F Bovespa 143,100 (36,028) 107,072 1.3 4,595 122,690 (9,067) (17,794) 5,585 1,063 352,549 Financial institutions - (306) (306) - 5 33 150 (467) (22) (5) 1,226 Companies - 10,628 10,628 0.1 1,817 1,345 5,597 1,869 - - 4,492 Option premiums 2,269,755 34,166 2,303,921 27.2 332,163 220,459 837,191 767,772 141,465 4,871 1,318,289 BM&F Bovespa 1,675,497 (46,372) 1,629,125 19.2 220,720 146,340 768,003 356,417 135,260 2,385 778,453 Financial institutions 114,364 119,126 233,490 2.8 87,092 52,350 64,221 26,998 343 2,486 134,430 Companies 479,881 (38,575) 441,306 5.2 24,351 21,769 4,967 384,357 5,862 - 405,406 Individuals 13 (13) ------Forwards 1,562,270 (122) 1,562,148 18.4 1,561,626 25 486 11 - - 1,608,474 BM&F Bovespa 582 6 588 - 77 25 486 - - - 1,503,613 Financial institutions 332,878 (135) 332,743 3.9 332,743 - - - - - 104,861 Companies 1,228,806 - 1,228,806 14.5 1,228,806 ------Individuals 4 7 11 - - - - 11 - - - - September0 Swaps – Adjustment receivable 2,687,936 592,677 3,280,613 38.6 228,762 719,157 531,570 479,673 237,308 1,084,143 1,711,926 BM&F Bovespa 187,045 88,369 275,414 3.2 3,978 7,677 9,971 115,478 19,079 119,231 156,533 Financial institutions 759,166 210,176 969,342 11.4 54,874 270,462 211,513 186,922 59,792 185,779 589,721 Companies 1,736,906 288,954 2,025,860 23.9 169,849 438,507 306,313 177,184 158,318 775,689 860,366 Individuals 4,819 5,178 9,997 0.1 61 2,511 3,773 89 119 3,444 105,306 Credit derivatives 14,852 7,930 22,782 0.3 15 782 7,462 2,151 1,130 11,242 28,541
Financial institutions 14,852 7,930 22,782 0.3 15 782 7,462 2,151 1,130 11,242 28,541 Forwards 305,189 (14) 305,175 3.6 61,942 83,547 83,335 50,251 22,147 3,953 1,010,831 Financial institutions 223,819 - 223,819 2.6 42,247 56,274 65,503 39,872 16,427 3,496 257,315 Companies 81,265 (15) 81,250 1.0 19,651 27,212 17,831 10,379 5,720 457 753,096 Individuals 105 1 106 - 44 61 1 - - - 420 Swaps with target flow 214,681 28,805 243,486 0.6 1,663 3,821 47,466 660 120,307 69,569 833,968 Swaps 95,524 (48,313) 47,211 0.6 535 3,817 40,262 660 1,150 787 165,345 Financial institutions ------(122) Companies 95,524 (48,313) 47,211 0.6 535 3,817 40,262 660 1,150 787 162,160 Individuals ------3,307 Target flow of swap 119,157 77,118 196,275 2.3 1,128 4 7,204 - 119,157 68,782 668,623 Financial institutions ------3,180 Companies 119,157 77,118 196,275 2.3 1,128 4 7,204 - 119,157 68,782 665,443 Other 670,946 (21,883) 649,063 7.6 120,656 152,133 143,868 30,660 133,714 68,032 202,735 BM&F Bovespa - 301 301 - - - 206 87 8 - 594 Financial institutions 240,456 (38,613) 201,843 2.4 4,362 4,160 381 499 125,480 66,961 194,315 Companies 430,490 16,429 446,919 5.2 116,294 147,973 143,281 30,074 8,226 1,071 7,826 Total 7,868,729 615,853 8,484,582 100.0 2,313,244 1,303,992 1,648,058 1,314,786 661,634 1,242,868 7,073,031 % per maturity term 27.3% 15.4% 19.4% 15.5% 7.8% 14.6% Total 09/30/2008 6,573,796 499,235 7,073,031 100.0 1,320,569 1,994,732 1,281,835 1,333,977 471,759 670,159 % per maturity term 18.6% 28.2% 18.1% 18.9% 6.7% 9.5% 85 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
09/30/2009 09/30/2008 Adjustment to Over 720 Cost market value Market value % 0 - 30 31 - 90 91 - 180 181 - 365 366 - 720 Market value days (in results) LIABILITIES Option premiums (2,132,944) (155,647) (2,288,591) 30.7 (297,012) (403,040) (795,392) (416,958) (372,302) (3,887) (1,801,494) BM&F Bovespa (1,956,309) 184,261 (1,772,048) 23.8 (189,091) (328,018) (698,700) (367,291) (187,273) (1,675) (1,491,875) Financial institutions (146,536) (319,096) (465,632) 6.2 (91,399) (60,530) (90,345) (45,329) (175,837) (2,192) (275,255) Companies (30,099) (20,812) (50,911) 0.7 (16,522) (14,492) (6,347) (4,338) (9,192) (20) (33,750) Individuals ------(614) Forwards (1,561,752) 146 (1,561,606) 21.0 (1,561,549) - - (57) - - (112,785) BM&F Bovespa ------(7,924) Financial institutions (332,878) 135 (332,743) 4.5 (332,743) - - - - - (104,861) Companies (1,228,806) - (1,228,806) 16.5 (1,228,806) ------Individuals (68) 11 (57) - - - - (57) - - - Swaps – difference payable (1,667,747) (635,714) (2,303,461) 30.8 (115,045) (579,981) (276,671) (300,716) (225,193) (805,855) (2,006,513) BM&F Bovespa (166,237) (180,128) (346,365) 4.6 (405) (2,236) (17,767) (67,607) (51,871) (206,479) (271,985) Financial institutions (396,608) (478,939) (875,547) 11.7 (33,068) (28,389) (175,995) (172,261) (95,201) (370,633) (605,158) Companies (1,056,290) 27,428 (1,028,862) 13.8 (80,794) (512,436) (70,915) (59,174) (77,934) (227,609) (1,093,338) Individuals (48,612) (4,075) (52,687) 0.7 (778) (36,920) (11,994) (1,674) (187) (1,134) (36,032) Credit derivatives (91,402) (32,816) (124,218) 1.7 (40,621) (5,525) (17,263) (6,096) (3,169) (51,544) (51,020) Financial institutions (91,320) (32,862) (124,182) 1.7 (40,621) (5,525) (17,227) (6,096) (3,169) (51,544) (51,020) Companies (82) 46 (36) - - - (36) - - - - - September0 Forwards (349,600) (1,468) (351,068) 4.7 (77,711) (78,298) (83,859) (56,400) (51,070) (3,730) (574,514) Financial institutions (108,269) (232) (108,501) 1.5 (44,720) (15,976) (22,588) (10,102) (14,509) (606) (202,520) Companies (240,343) (1,236) (241,579) 3.2 (32,801) (62,045) (60,960) (46,116) (36,533) (3,124) (371,813) Individuals (988) - (988) - (190) (277) (311) (182) (28) - (181) Swaps with target flow (314,366) 77,699 (236,667) 1.2 (32,018) (696) (3,001) - (13,107) (187,845) (222,155) Swaps (84,802) (4,179) (88,981) 1.2 (1,579) (696) (446) - (13,107) (73,153) (129,982)
Financial institutions (43,059) 43,059 ------(126,574) Companies (41,743) (47,238) (88,981) 1.2 (1,579) (696) (446) - (13,107) (73,153) (3,408) Target flow of swap – foreign currency (229,564) 81,878 (147,686) 1.9 (30,439) - (2,555) - - (114,692) (92,173) Financial institutions (25,682) (7,312) (32,994) 0.4 (30,439) - (2,555) - - - (92,173) Companies (203,882) 89,190 (114,692) 1.5 - - - - - (114,692) - Other (586,914) (5,878) (592,792) 8.0 (98,534) (161,233) (79,008) (75,450) (148,664) (29,903) (325,189) BM&F Bovespa - (422) (422) - (154) - (42) - (226) - (2,780) Financial institutions (95,277) (18,181) (113,458) 1.6 (1) (377) (216) (3,824) (109,040) - (320,999) Companies (431,592) 12,725 (418,867) 5.6 (81,869) (135,949) (62,757) (68,991) (39,398) (29,903) (1,410) Individuals (60,045) - (60,045) 0.8 (16,510) (24,907) (15,993) (2,635) - - - Total (6,704,725) (753,678) (7,458,403) 100.0 (2,222,490) (1,228,773) (1,255,194) (855,677) (813,505) (1,082,764) (5,093,670) % per maturity term 29.8% 16.5% 16.8% 11.5% 10.9% 14.5% Total 09/30/2008 (4,317,167) (776,503) (5,093,670) 100.0 (995,147) (1,405,190) (904,952) (744,333) (443,149) (600,899) % per maturity term 19.5% 27.6% 17.8% 14.6% 8.7% 11.8%
In ITAÚ UNIBANCO HOLDING recorded at market value swap contracts involving foreign currency, interbank market and indices totaling R$ (881) in liability position (R$ 1,515 at 09/30/2008), distributed as follows: R$ (25) from 31 to 180 days (R$ 45 at 09/30/2008), R$ (25) from 181 to 365 days (R$ 44 at 09/30/2008) and R$ (831) over 365 days (R$ 1,426 at 09/30/2008).
86 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
III - See below the composition of Derivative Financial Instruments portfolio by type of instrument, stated at their notional amounts, per trading location (organized or over-the-counter market) and counterparties.
09/30/2009 Credit Swap with Target flow Futures Swaps Options Forwards Forwards Other derivatives target flow of swap BM&FBovespa 183,097,796 10,856,587 1,337,178,405 606 - - - - 1,531,434 Over-the-counter market 13,799,707 67,683,476 39,959,872 1,562,994 5,641,746 12,710,194 1,218,751 3,746,618 11,225,843 Financial institutions 12,641,211 42,834,649 29,858,169 332,743 5,638,190 9,085,218 245,331 375,925 2,207,512 Companies 1,158,496 24,009,125 10,100,728 1,229,161 3,556 3,590,551 973,420 3,370,693 8,960,999 Individuals - 839,702 975 1,090 - 34,425 - - 57,332 Total at 09/30/2009 196,897,503 78,540,063 1,377,138,277 1,563,600 5,641,746 12,710,194 1,218,751 3,746,618 12,757,277 Total at 09/30/2008 98,199,446 50,661,730 90,201,442 3,180,590 6,722,704 24,221,945 4,815,055 16,224,950 12,027,194
The total value of margins pledged in guarantee was R$ 15,513,710 (R$ 12,246,945 at 09/30/2008) and was basically composed of government securities. - September0 87 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
IV - Credit derivatives
See below the composition of Credit Derivatives (assets and liabilities) portfolio stated at notional amount, and effect in calculation of Required Referential Equity.
Credit risk amount 09/30/2009 09/30/2008 Transferred (2,331,167) (3,318,535) Credit swaps whose underlying assets are: Securities (1,165,992) (2,952,798) Total return rate swaps whose underlying assets are: Securities (1,165,175) (365,737) Received 2,686,908 1,892,558 Credit swaps whose underlying assets are: Securities 2,686,908 1,892,558 Total 355,741 (1,425,977)
- September0 During the period, there was no occurrence of credit event related to those set forth in agreements.
According to CMN Resolution No. 3,490, which became effective on July 1, 2008 (Note 3), the effect of the calculation of the Required Referential Equity amounts to R$ 139,366. 88 V - Accounting hedge
a) The purpose of ITAÚ UNIBANCO hedge relationship is to protect the cash flow of payment of debt interest (CDB / Redeemable preferred shares) related to its variable interest rate risk (CDI / LIBOR), making the cash flow constant (fixed rate) and regardless of the variations of DI Cetip Over and LIBOR.
To protect the future cash flows of debt against exposure to variable interest rate (CDI), at September 30, 2009 ITAÚ UNIBANCO HOLDING negotiated DI Futures agreements at BM&FBOVESPA with maturity between 2009 and 2017 in the amount of R$ 10,099,463. To protect the future cash flows of debt against exposure to variable interest rate (LIBOR), at September 30, 2009 ITAÚ UNIBANCO HOLDING negotiated Swap contracts with maturity in 2015 in the amount of R$ 698,921. These derivative financial instruments gave rise to adjustment to market value net of tax effects recorded in stockholders net equity of (R$ 170,867), of which (R$ 158,850) refers to CDB and (R$ 12,017) refers to Redeemable preferred shares. The hedged items total R$ 9,667,728 of CDB with maturities between 2009 and 2017 and R$ 698,921 of swaps of redeemable preferred shares with maturity in 2015.
The gains or losses related to the accounting hedge of cash flows, which we expect that they be reclassified from stockholders’ equity into results in the following months, amount to R$ 116,567.
The effectiveness computed for hedge portfolio was in conformity with the provisions of BACEN Circular No. 3,082 of January 30, 2002.
b) The swap operations contracted in a negotiation associated with the funding and/or investment in the amount of R$ 603,612 are recorded at amounts restated in accordance with variations occurred in respective ratios (“curve”) and are not valued at their market value, as permitted by BACEN Circular No. 3,150/02.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 89 VI - Realized and unrealized gain of the derivative financial instruments portfolio
01/01 to 01/01 to 09/30/2009 09/30/2008 Swaps 1,836,657 514,357 Forwards (524,939) 147,023 Futures 6,497,700 (223,810) Options 425,248 (34,075) Credit derivatives 75,691 20,814 Other (158,306) 8,782 Total 8,152,051 433,091
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 90 i) Changes in adjustment to market value for the period
01/01 to 01/01 to 09/30/2009 09/30/2008 Opening Balance (2,816,936) 276,623 Adjustments with impact on: Results 2,850,387 (559,988) Trading securities (120,694) (22,164) Derivative financial instruments (assets and liabilities) 2,971,081 (537,824) Stockholders' equity 872,845 (167,506) Closing balance 906,296 (450,871) Adjustment to market value 906,296 (450,871) Trading securities 330,637 (65,403) Available-for-sale securities 713,484 (108,200) Derivative financial instruments (assets and liabilities) (137,825) (277,268)
For better understanding, the following table shows the unrealized gain of available-for-sale securities and held-to-maturity securities:
09/30/2009 09/30/2008 Adjustment of available-for-sale securities – stockholders’ equity 713,484 (108,200) Adjustment to held-to-maturity securities (*) 419,970 193,319 Total unrealized gain 1,133,454 85,119 (*) Includes the amount of R$ 16,604 (R$ 20,169 at 09/30/2008) regarding the adjustment to market value of securities reclassified up to December 31, 2003, not recognized in net income.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 91 j) Sensitivity analysis (TRADING AND BANKING PORTFOLIOS)
According to the criteria for classification of operations provided for by BACEN Resolution No. 3,464/07 and Circular No. 3,354/07, and the New Capital Accord – Basel II, the financial instruments of ITAÚ UNIBANCO HOLDING, included all transactions with derivatives, are separated in Trading and Banking portfolios.
The sensitivity analysis shown below does not predict the dynamics of the operation of the risk and treasury areas, because once loss related to positions is found, risk mitigating measures are quickly taken, minimizing the possibility of significant losses. In addition, we point out that the presented results do not necessarily translate into accounting results, because the study's sole purpose is to disclose the exposure to risks and the respective protective actions, taking into account the fair value of financial instruments, irrespective of the accounting practices adopted by the institutions.
The trading portfolio consists of all transactions, including those with derivatives, held with the intention of being traded or to provide hedge to the other financial instruments of this strategy. These are transactions for resale, obtaining benefits from price movements, actual or expected or conduction of arbitrage. This portfolio has strict limits set by the risk areas and is daily controlled.
Amounts in thousands of Brazilian Reais Trading portfolio Exposures 09/30/2009 (*) Scenarios Risk Factors Risk of variation in: IIIIII Fixed rate Fixed rate in Reais (1,344) (240,696) (599,566) Foreign exchange coupons Rates of foreign exchange coupons 257 (3,957) (9,141) Foreign currency Exchange variation (13,862) (346,539) (693,078) Price indices Rates of price indices coupon 11 (13,580) (26,889) Long-term interest rate Rate of TJLP coupon 16 (4,053) (8,260) Reference rate Rate of TR coupon (33) (6,376) (12,202) Variable rate Share price 11,597 (169,613) (339,226) Total without correlation (784,814) (1,688,361) Total with correlation (486,264) (1,046,094) (*) Amounts net of tax effects.
The banking portfolio comprises transactions that do not fit into the trading portfolio concept and are typically banking transactions of the institution’s business lines and their respective hedges, which may or not be carried out with derivative financial instruments. Accordingly, the derivatives of this portfolio are not used for speculation purposes, not generating significant economic risks to the institution.
The considerable impact on the fixed-income factor is related to the market risks of fixed-rate financing of the banking portfolio, which are not recognized as marked to market and, therefore, are not necessarily fully subject to hedge.
Amounts in thousands of Brazilian Reais Trading and Banking portfolio Exposures 09/30/2009 (*) Scenarios Risk Factors Risk of variation in: IIIIII Fixed rate Fixed rate in Reais (5,688) (1,477,939) (2,976,692) Foreign exchange coupons Rates of foreign exchange coupons 1,835 (45,608) (95,574) Foreign currency Exchange variation 3,188 (79,711) (159,422) Price indices Rates of price indices coupon 12 (29,434) (56,787) Long-term interest rate Rate of TJLP coupon 1 (30,886) (61,925) Reference rate Rate of TR coupon 1,499 (132,483) (274,729) Variable rate Share price 13,879 (202,982) (405,963) Total without correlation (1,999,043) (4,031,092) Total with correlation (1,238,590) (2,497,631) (*) Amounts net of tax effects.
Scenario I: Addition of 1 base point to the fixed-rate curve, currency coupon, inflation and interest rate indices, and 1 percentage point in currency and share prices, which is based on market information (BM&F BOVESPA, Andima, etc).
Scenario II: Shocks at approximately 25% in the portfolio of September 30, 2009, considering the largest resulting losses per risk factor;
Scenario III: Shocks at approximately 50% in the portfolio of September 30, 2009, considering the largest resulting losses per risk factor.
All derivative financial instruments held by ITAÚ UNIBANCO HOLDING are shown in Note 7.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 92 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
NOTE 8 - LOAN, LEASE AND OTHER CREDIT OPERATIONS
a) Composition of the portfolio with credit granting characteristics
I - By type of operations and risk level
09/30/2009 09/30/2008 Risk Levels AA A. B C D E F G H Total Total
Loan operations 32,536,091 65,214,768 30,035,769 9,616,526 5,949,111 3,301,318 1,774,637 1,164,733 7,786,006 157,378,959 95,047,802 Loans and discounted trade receivables 18,809,207 33,983,897 20,881,179 8,024,537 5,136,920 2,870,263 1,573,667 1,027,698 6,886,233 99,193,601 62,956,792 Financing 11,239,098 21,597,483 7,463,543 1,184,956 578,604 197,111 128,237 94,467 774,532 43,258,031 21,782,701 Farming and agribusiness financing 1,492,167 1,989,435 1,010,651 85,935 101,794 139,525 27,917 11,161 70,145 4,928,730 4,574,201 Real estate financing 995,619 7,643,953 680,396 321,098 131,793 94,419 44,816 31,407 55,096 9,998,597 5,734,108
Lease operations 1,435,929 35,037,080 6,077,563 2,396,069 998,025 560,944 413,622 373,045 1,135,987 48,428,264 39,841,033
Credit card operations - 9,641,078 8,427,470 2,287,049 1,667,274 614,434 436,720 364,630 2,575,280 26,013,935 12,245,315
Advance on exchange contracts (1) 1,215,796 1,692,322 1,158,340 459,376 314,321 51,284 11,108 8,600 25,140 4,936,287 3,775,093
Other sundry receivables (2) 81,818 102,372 38,456 3,192 34,342 5,980 4,176 9,013 62,538 341,887 105,605 - September0 Total operations with credit granting characteristics 35,269,634 111,687,620 45,737,598 14,762,212 8,963,073 4,533,960 2,640,263 1,920,021 11,584,951 237,099,332 151,014,848 Endorsements and sureties (3) 31,594,253 13,471,415
Total with endorsements and sureties 35,269,634 111,687,620 45,737,598 14,762,212 8,963,073 4,533,960 2,640,263 1,920,021 11,584,951 268,693,585 164,486,263 Total – 09/30/2008 25,412,813 74,505,367 30,488,891 8,269,827 4,842,738 2,098,839 1,311,596 803,373 3,281,404 151,014,848 (1) Includes Advances on Exchange Contracts and Income Receivable from Advances Granted, reclassified from Liabilities – Foreign Exchange Portfolio/Other Receivables (Note 2a);
(2) Includes Securities and Credits Receivable, Debtors for Purchase of Assets and Endorsements and Sureties paid; (3) Recorded in Memorandum Accounts. 93 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
II – By maturity and risk level
09/30/2009 09/30/2008 AA A B C D E F G H Total Total OVERDUE OPERATIONS (1) (2) Falling due installments - - 2,952,639 2,171,032 1,313,704 1,241,357 800,474 638,120 2,783,531 11,900,857 5,725,020 01 to 30 - - 150,952 105,881 79,554 84,844 49,473 40,658 197,218 708,580 336,146 31 to 60 - - 130,343 101,782 65,276 54,313 43,769 35,306 167,768 598,557 284,506 61 to 90 - - 128,644 98,544 64,883 60,303 52,379 35,675 162,904 603,332 269,505 91 to 180 - - 362,563 326,893 181,855 150,175 114,846 100,684 423,994 1,661,010 750,191 181 to 365 - - 643,545 481,421 290,712 280,630 183,704 157,137 668,431 2,705,580 1,292,960 Over 365 - - 1,536,592 1,056,511 631,424 611,092 356,303 268,660 1,163,216 5,623,798 2,791,712 Overdue installments - - 502,408 657,364 1,235,544 1,097,992 1,005,067 962,583 6,934,928 12,395,886 4,380,180 01 to 14 - - 25,151 50,531 33,463 26,109 19,616 17,162 82,028 254,060 118,643 15 to 30 - - 477,257 170,706 298,006 110,631 69,181 41,294 183,755 1,350,830 672,988 31 to 60 - - - 436,127 405,139 159,563 107,615 62,073 305,012 1,475,529 674,914 61 to 90 - - - - 498,936 220,055 130,745 86,211 320,335 1,256,282 549,915 91 to 180 - - - - - 581,634 677,910 755,843 1,461,254 3,476,641 1,447,416 181 to 365 ------4,403,816 4,403,816 820,649 Over 365 ------178,728 178,728 95,655
- September0 SUBTOTAL - - 3,455,047 2,828,396 2,549,248 2,339,349 1,805,541 1,600,703 9,718,459 24,296,743 10,105,200 SPECIFIC ALLOWANCE - - (34,550) (84,851) (254,925) (701,805) (902,771) (1,120,492) (9,718,459) (12,817,853) (3,921,595) SUBTOTAL – 09/30/2008 - - 2,162,065 1,477,188 1,368,666 1,042,431 867,091 717,472 2,470,287 10,105,200 NON-OVERDUE OPERATIONS Falling due installments 35,216,899 111,077,151 41,845,465 11,639,524 6,198,942 2,115,294 804,141 309,718 1,804,742 211,011,876 139,769,364 01 to 30 4,697,151 14,775,121 11,886,184 4,363,587 2,324,906 446,102 177,816 66,337 526,895 39,264,099 29,023,023 31 to 60 3,003,575 8,902,758 4,617,230 1,255,354 505,529 115,362 71,896 22,115 199,374 18,693,193 12,781,041 61 to 90 2,967,077 6,984,554 3,465,612 1,116,977 416,251 104,863 49,381 12,627 112,135 15,229,477 8,942,551 91 to 180 3,014,658 14,202,242 5,380,014 1,429,868 653,333 271,171 105,580 26,096 167,530 25,250,492 15,850,493 181 to 365 5,857,751 18,209,199 5,907,403 1,291,704 762,570 300,392 135,965 33,611 241,673 32,740,268 21,533,294 Over 365 15,676,687 48,003,277 10,589,022 2,182,034 1,536,353 877,404 263,503 148,932 557,135 79,834,347 51,638,962 Overdue up to 14 days 52,735 610,469 437,086 294,292 214,883 79,317 30,581 9,600 61,750 1,790,713 1,140,284 SUBTOTAL 35,269,634 111,687,620 42,282,551 11,933,816 6,413,825 2,194,611 834,722 319,318 1,866,492 212,802,589 140,909,648 GENERIC ALLOWANCE - (558,438) (422,826) (358,014) (641,383) (658,383) (417,361) (223,523) (1,866,492) (5,146,420) (2,617,403) SUBTOTAL – 09/30/2008 25,412,813 74,505,367 28,326,826 6,792,639 3,474,072 1,056,408 444,504 85,901 811,117 140,909,647 GRAND TOTAL 35,269,634 111,687,620 45,737,598 14,762,212 8,963,073 4,533,960 2,640,263 1,920,021 11,584,951 237,099,332 151,014,848 EXISTING ALLOWANCE - (918,721) (1,367,554) (1,474,745) (2,688,025) (2,266,527) (1,847,921) (1,919,829) (11,584,951) (24,068,273) (8,788,998) Minimum allowance required (3) - (558,438) (457,376) (442,866) (896,307) (1,360,188) (1,320,132) (1,344,015) (11,584,951) (17,964,273) (6,538,998) Additional allowance (4) - (360,283) (910,178) (1,031,879) (1,791,718) (906,339) (527,789) (575,814) - (6,104,000) (2,250,000) GRAND TOTAL 09/30/2008 25,412,813 74,505,367 30,488,891 8,269,827 4,842,738 2,098,839 1,311,596 803,373 3,281,404 151,014,848 EXISTING ALLOWANCE - (372,527) (304,889) (607,354) (1,452,337) (1,049,209) (917,986) (803,293) (3,281,404) (8,788,998) Minimum allowance required (3) - (372,527) (304,889) (248,095) (484,274) (629,651) (655,798) (562,361) (3,281,404) (6,538,998) Additional allowance (4) - - - (359,259) (968,063) (419,558) (262,188) (240,932) - (2,250,000) (1) Operations with overdue installments for more than 14 days or under responsibility of bankruptcy or in process of bankruptcy companies; (2) The balance of non-accrual operations amounts to R$ 16,639,451 (R$ 5,964,792 at 09/30/2008); (3) The policy of not using “AA” ratings for individuals was maintained. As a consequence, all loan operations with clients classified in these segments are charged by recording a provision upon the granting of loan; (4) According to BACEN’s request, it is classified into risk level to show the additional amounts found through the use of statistical models for evaluating the portfolios in the event of stress in the economic scenario. 94 III – By business sector
09/30/2009 % 09/30/2008 %
PUBLIC SECTOR 1,486,427 0.6 688,337 0.5 Generation, transmission and distribution of electric energy 876,812 0.4 365,961 0.2 Chemical and petrochemical 166,320 0.1 122,393 0.1 Other 443,295 0.2 199,983 0.1 PRIVATE SECTOR 235,612,905 99.4 150,326,511 99.5 COMPANIES 128,043,302 54.0 76,938,481 50.9 INDUSTRY AND COMMERCE 67,598,779 28.5 42,988,610 28.5 Food and beverages 10,722,940 4.5 7,097,162 4.7 Autoparts and accessories 2,531,191 1.1 1,599,637 1.1 Agribusiness capital assets 671,833 0.3 349,239 0.2 Industrial capital assets 3,771,061 1.6 1,793,776 1.2 Pulp and paper 1,807,861 0.8 963,407 0.6 Distribution of fuels 1,578,025 0.7 781,015 0.5 Electrical and electronic 5,427,479 2.3 3,399,595 2.3 Pharmaceuticals 1,567,394 0.7 1,174,852 0.8 Fertilizers, insecticides and crop protection 1,409,618 0.6 1,900,896 1.3 Tobacco 534,234 0.2 299,890 0.2 Import and export 1,559,009 0.7 1,307,000 0.9 Hospital care materials and equipment 680,852 0.3 422,141 0.3 Construction material 3,278,437 1.4 1,293,983 0.9 Steel and metallurgy 6,360,202 2.7 4,743,470 3.1 Wood and furniture 2,335,818 1.0 1,632,207 1.1 Chemical and petrochemical 5,110,302 2.2 3,905,789 2.6 Supermarkets 1,006,068 0.4 363,788 0.2 Light and heavy vehicles 5,458,407 2.3 2,796,894 1.9 Clothing 5,438,869 2.3 2,858,305 1.9 Other - Commerce 3,478,940 1.5 1,943,372 1.3 Other - Industry 2, 870,239 1.2 2,362,192 1.6 SERVICES 46,090,886 19.4 24,320,325 16.1 Heavy construction (Constructors) 2,952,008 1.2 1,381,864 0.9 Financial 3,732,047 1.6 3,397,293 2.2 Generation, transmission and distribution of electric energy 5,675,134 2.4 2,563,861 1.7 Holding company 2,962,751 1.2 1,562,397 1.0 Real estate agents 6,393,073 2.7 3,824,527 2.5 Media 2,291,268 1.0 1,426,973 0.9 Service companies 2,970,850 1.3 1,551,828 1.0 Health care 1,244,393 0.5 505,391 0.3 Telecommunications 1,208,221 0.5 568,539 0.4 Transportation 9,737,555 4.1 3,514,227 2.3 Other services 6,923,586 2.9 4,023,425 2.7 PRIMARY SECTOR 13,175,718 5.6 7,857,255 5.2 Agribusiness 11,368,652 4.8 6,411,816 4.2 Mining 1,807,066 0.8 1,445,439 1.0 OTHER COMPANIES 1,177,919 0.5 1,772,291 1.2 INDIVIDUALS 107,569,603 45.3 73,388,030 48.6 Credit cards 25,775,281 10.9 12,009,794 8.0 Consumer loans/overdraft 24,054,243 10.1 16,936,254 11.2 Real estate financing 7,069,546 3.0 5,027,994 3.3 Vehicles 50,670,533 21.4 39,413,988 26.1
GRAND TOTAL 237,099,332 100.0 151,014,848 100.0
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 95 b) Credit concentration
09/30/2009 09/30/2008 Loan, lease and other credit operations (*) Risk % of Total Risk % of Total Largest debtor 2,408,762 0.9 1,054,276 0.6 20 largest debtors 24,765,087 9.2 10,810,571 6.6 50 largest debtors 41,078,059 15.3 19,044,762 11.6 100 largest debtors 55,778,926 20.8 26,597,249 16.2
Loan, lease and other credit operations and securities of companies 09/30/2009 09/30/2008 and financial institutions (*) Risk % of Total Risk % of Total Largest debtor 3,847,132 1.3 3,498,821 1.8 20 largest debtors 37,121,470 12.4 21,051,925 11.1 50 largest debtors 59,741,281 19.9 33,160,708 17.5 100 largest debtors 80,244,351 26.7 44,295,049 23.3 (*) The amounts include endorsements and sureties.
c) Changes in allowance for loan losses
01/01 to 01/01 to 09/30/2009 09/30/2008 Opening Balance (19,972,155) (7,925,660) Net increase for the period (12,382,541) (5,939,019) Minimum required by Resolution No. 2682/99 (14,069,541) (5,839,019) Additional 1,687,000 (100,000) Write-Off 8,286,423 5,075,681 Closing balance (24,068,273) (8,788,998) Specific allowance (1) (3) (12,817,853) (3,921,595) Generic allowance (2) (3) (5,146,420) (2,617,403) Additional allowance (4) (6,104,000) (2,250,000) (1) Operations with overdue installments for more than 14 days or under responsibility of bankruptcy or in process of bankruptcy companies. (2) For operations not covered in the previous item due to the classification of the client or operation. (3) The specific and generic allowances reflect the effects of the supplementary allowance totaling R$ 383,300 (R$ 365,713 at 09/30/2008) as it does not consider the option established by article 5 of the CMN Resolution No. 2,682 of 12/21/1999, amended by article 2 of CMN Resolution No. 2,697 of 02/24/2000, that the loan transactions with clients whose total liability is below R$ 50 could be determined based on the overdue amounts. (4) Refers to the provision in excess of the minimum required by CMN Resolution No.2,682, of December 12, 1999, recognized within the prudential criteria adopted by Management in accordance with good banking practice, in order to enable the absorption of possible increases in default arising from a strong reversal of the economic cycle, quantified in view of the historic performance of loan portfolios in economic crises situations. Starting December 31, 2008, considering the economic scenario and the uncertainties related thereto, the criteria for recognition of an additional allowance for credit risks have been revised so as to include the portion related to risks associated with a more pessimistic scenario for 2009/2010, not yet fully covered by the historic scenarios noted in the recent past.
At September 30, 2009, the balance of the allowance in relation to the loan portfolio is equivalent to 10.2% (5.8% at 09/30/2008).
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 96 d) Recovery and renegotiation of credits
I - Composition of the result of allowance for loan losses
01/01 to 01/01 to 09/30/2009 09/30/2008 Expense for allowance for loan losses (12,382,541) (5,939,019) Income from recovery of credits written off as loss 1,440,205 879,780 Result of allowance for loan losses (10,942,336) (5,059,239)
II - Renegotiated credits
09/30/2009 09/30/2008 Renegotiated credits 7,277,785 3,092,817 Allowance for loan losses (3,855,718) (1,438,236) (%) 53.0 46.5
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 97 e) Restricted operations on assets
We present below information related to the restricted operations on assets, in accordance with CMN Resolution No. 2,921, of January 17, 2002.
01/01 to 09/30/2009 09/30/2009 Income 0 - 30 31 - 180 Over 365 Total (Expenses)
Restricted operations on assets Loan operations 1,170 59,056 198,833 259,059 (72,235) Liabilities - restricted operations on assets Foreign borrowings through securities 1,170 58,905 198,833 258,908 72,640 Net revenue from restricted operations 405
At September 30, 2009, there were no balances in default.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 98 NOTE 9 - FOREIGN EXCHANGE PORTFOLIO
09/30/2009 09/30/2008 ASSETS – OTHER RECEIVABLES 35,722,645 24,268,176 Exchange purchase pending settlement – foreign currency 21,138,359 15,719,666 Bills of exchange and term documents – foreign currency 952 29,140 Exchange sale rights – local currency 14,906,180 8,757,571 (Advances received) – local currency (322,846) (238,201) LIABILITIES – OTHER LIABILITIES (Note 2a) 36,721,988 23,949,010 Exchange sales pending settlement – foreign currency 15,819,821 11,551,111 Liabilities from purchase of foreign currency – local currency 20,897,773 12,393,745 Other 4,394 4,154 MEMORANDUM ACCOUNTS 381,844 324,272 Outstanding import credits – foreign currency 342,561 264,459 Confirmed export credits – foreign currency 39,283 59,813
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 99 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
NOTE 10 – FUNDING AND BORROWINGS AND ONLENDING a) Summary
09/30/2009 09/30/2008 0-30 31-180 181-365 Over 365 Total % Total % Deposits 87,280,017 15,823,478 11,654,821 74,331,076 189,089,392 48.5 113,078,114 42.7 Deposits received under securities repurchase agreements 63,797,223 11,450,865 10,930,236 40,486,132 126,664,456 32.4 105,803,490 39.9 Funds from acceptances and issuance of securities 2,131,716 7,024,990 1,813,342 7,567,557 18,537,605 4.7 10,582,520 4.0 Borrowings and onlending 1,959,969 7,226,063 5,278,974 18,343,079 32,808,084 8.4 20,807,824 7.9 Securitization of foreign payment orders (1) - - - - - 0.0 1,453,317 0.5 Subordinated debt (2) 13,321 1,161,313 36 22,296,898 23,471,568 6.0 13,260,084 5.0 TOTAL 155,182,246 42,686,709 29,677,409 163,024,742 390,571,105 264,985,349 % per maturity term 39.8 10.9 7.6 41.7 TOTAL – 09/30/2008 117,285,678 33,643,577 18,363,339 95,692,755 264,985,349 % per maturity term 44.3 12.7 6.9 36.1 (1) Funds obtained abroad through the sales to Brazilian Diversified Payment Rights Finance Company of rights related to payment orders receivable abroad. - September0 (2) Includes R$ 698,957 (R$752,563 at 09/30/2008) of Redeemable Preferred Shares classified under Minority Interest in the Balance Sheet.
b) Deposits
09/30/2009 09/30/2008 0-30 31-180 181-365 Over 365 Total % Total % Demand deposits 22,707,717 - - - 22,707,717 12.1 19,018,447 16.8 Savings accounts 44,146,423 - - - 44,146,423 23.3 29,925,490 26.5 Interbank 761,239 834,423 422,292 213,737 2,231,691 1.2 2,345,063 2.1 Time deposits 18,630,391 14,989,055 11,232,529 74,117,339 118,969,314 62.9 60,847,246 53.8 Other deposits 1,034,247 - - - 1,034,247 0.5 941,868 0.8 TOTAL 87,280,017 15,823,478 11,654,821 74,331,076 189,089,392 113,078,114 % per maturity term 46.1 8.4 6.2 39.3 TOTAL - 09/30/2008 61,056,113 12,520,673 5,692,574 33,808,754 113,078,114 % per maturity term 53.9 11.1 5.0 29.9
At September 30, 2009, ITAÚ UNIBANCO HOLDING’s portfolio is composed of Interbank Deposits in the amount of R$ 880,795 (R$ 334,891 at 09/30/2008) with maturity over 365 days.
100 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
c) Deposits received under securities repurchase agreements
09/30/2009 09/30/2008 0 - 30 31 - 180 181 - 365 Over 365 Total % Total % Own portfolio 10,011,449 11,450,865 10,909,347 36,499,025 68,870,686 54.4 55,312,276 52.3 Government securities 5,553,977 309,368 153,364 12,846 6,029,555 4.8 846,759 0.8 Own issue 2,099,545 11,005,746 10,740,034 36,107,173 59,952,498 47.3 52,774,566 49.9 Foreign 2,357,927 135,751 15,949 379,006 2,888,633 2.3 1,690,951 1.6 Third-party portfolio 53,633,323 - 2,157 340 53,635,820 42.3 49,783,221 47.0 Free portfolio 152,451 - 18,732 3,986,767 4,157,950 3.3 707,993 0.7 TOTAL 63,797,223 11,450,865 10,930,236 40,486,132 126,664,456 105,803,490 % per maturity term 50.4 9.0 8.6 32.0 TOTAL - 09/30/2008 53,705,256 11,774,676 7,358,572 32,964,986 105,803,490 % per maturity term 50.7 11.1 7.0 31.2 - September0 101 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
d) Funds from acceptance and issuance of securities
09/30/2009 09/30/2008 0-30 31-180 181-365 Over 365 Total % Total % REAL ESTATE, MORTGAGE, CREDIT AND SIMILAR NOTES 1,541,766 6,204,346 552,850 875,639 9,174,601 49.5 3,272,291 30.9 DEBENTURES 96,886 22,845 37,044 2,731,931 2,888,706 15.6 2,149,667 20.3 FOREIGN BORROWINGS AND SECURITIES 493,064 797,799 1,223,448 3,959,987 6,474,298 34.9 5,160,562 48.8 Trade Related – Issued abroad - Structure Note Issued 121,554 136,121 13,994 499,618 771,287 4.2 781,224 7.4 Non-trade Related 371,510 661,678 1,209,454 3,460,369 5,703,011 30.8 4,379,338 41.4 Issued abroad 371,510 661,678 1,209,454 3,460,369 5,703,011 30.8 4,379,338 41.4 Brazil Risk Note Programme 35,197 500,660 192,292 1,691,074 2,419,223 13.1 903,891 8.5 Euro Certificates of Deposits 324,057 9,783 287,085 33,997 654,922 3.5 798,041 7.5 Euro Medium Term Note Programme 3,694 26,662 310,234 673,676 1,014,266 5.5 504,138 4.8 Eurobonds 2,321 2,261 61,481 55,781 121,844 0.7 22 0.0 Medium Term Note 2,844 5,929 1,193 184,155 194,121 1.0 123,922 1.2 Fixed Rate Notes 3,392 92,553 355,552 634,555 1,086,052 5.9 1,774,151 16.8 Other 5 23,830 1,617 187,131 212,583 1.1 275,173 2.6 TOTAL 2,131,716 7,024,990 1,813,342 7,567,557 18,537,605 10,582,520 - September0 % per maturity term 11.5 37.9 9.8 40.8 TOTAL - 09/30/2008 1,463,455 2,597,021 852,048 5,669,996 10,582,520 % per maturity term 13.8 24.5 8.1 53.6 102 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
e) Borrowings and onlending
09/30/2009 09/30/2008 0-30 31-180 181-365 Over 365 Total % Total % BORROWINGS 1,409,243 4,618,450 2,464,544 3,654,410 12,146,646 37.0 13,800,386 66.3 Domestic 633,111 29,189 18,569 57,330 738,198 2.2 181,676 0.9 Foreign (*) 776,132 4,589,261 2,445,975 3,597,080 11,408,448 34.8 13,618,710 65.4 ONLENDING 550,726 2,607,613 2,814,430 14,688,669 20,661,438 63.0 7,007,438 33.7 Domestic – official institutions 549,515 2,588,191 2,616,331 14,637,782 20,391,819 62.2 6,675,207 32.1 BNDES 264,514 943,843 1,012,312 7,387,930 9,608,599 29.3 3,578,338 17.2 FINAME 275,605 1,471,421 1,547,980 6,912,454 10,207,460 31.1 2,848,720 13.7 Other 9,396 172,927 56,039 337,398 575,760 1.8 248,149 1.2 Foreign 1,211 19,422 198,099 50,887 269,619 0.8 332,231 1.6 TOTAL 1,959,969 7,226,063 5,278,974 18,343,079 32,808,084 20,807,824 % per maturity term 6.0 22.0 16.1 55.9 TOTAL - 09/30/2008 1,060,854 6,643,489 4,341,216 8,762,265 20,807,824 - September0 % per maturity term 5.1 32.0 20.9 42.0 (*) Foreign borrowings are basically represented by foreign exchange transactions related to export pre-financing and import financing.
103 f) Subordinated debt
Funding obtained through issuance of subordinated debt, in accordance with the conditions determined by CMN Resolution No. 3,444, of February 28, 2007, and amendments established by CMN Resolution No. 3,532, of January 31, 2008, is as follows:
09/30/2009 09/30/2008 0-30 31-180 181-365 Over 365 Total % Total % CDB - 1,141,709 - 19,725,820 20,867,529 89.0 11,574,983 87.3 Euronotes - 19,604 - 880,339 899,943 3.8 868,210 6.5 Bonds - - - 128,567 128,567 0.5 68,358 0.5 Eurobonds 13,321 - - 889,050 902,371 3.8 - - (-) Transaction costs incurred (Note 4b) - - - (25,799) (25,799) (0.1) (4,030) - TOTAL OTHER LIABILITIES 13,321 1,161,313 - 21,597,977 22,772,611 12,507,521 Redeemable preferred shares - - 36 698,921 698,957 3.0 752,563 5.7 GRAND TOTAL 13,321 1,161,313 36 22,296,898 23,471,568 13,260,084 % per maturity term 0.1 4.9 0.0 95.0 TOTAL - 09/30/2008 - 38,357 105 13,221,622 13,260,084 % per maturity term - 0.3 0.0 99.7
Description Issue Maturity Return p.a. Principal (R$) Name of security
Subordinated CDB December 2002 December 2009 CDI + 0.87% 850,000 Subordinated CDB March 2007 April 2012 103.5% of CDI 5,000,000 Subordinated CDB May 2007 May 2014 CDI + 0.35% 1,804,500 Subordinated CDB November 2007 November 2012 CDI + 0.35% 300,000 Subordinated CDB January 2008 February 2013 CDI + 0.50% 880,000 Subordinated CDB February 2008 February 2013 CDI + 0.50% 1,256,000 Subordinated CDB November 2008 October 2014 112% of CDI 1,000,000 Subordinated CDB December 2002 December 2012 102.25% of CDI 220,000 Subordinated CDB November 2003 November 2013 102% of CDI 40,000 Subordinated CDB (1) December 2006 December 2016 CDI + 0.47% 500,000 Subordinated CDB (2) May 2007 May 2012 103.9% of CDI 1,406,000 Subordinated CDB (2) July 2007 July 2012 CDI + 0.38% 422,000 Subordinated CDB (2) August 2007 August 2012 CDI + 0.38% 200,000 Subordinated CDB (2) August 2007 August 2014 CDI + 0.46% 50,000 Subordinated CDB (2) October 2007 October 2012 IGPM + 7.33% 290,850 Subordinated CDB (2) October 2007 October 2012 103.8% of CDI 93,000 Subordinated CDB (2) October 2007 October 2014 IGPM + 7.35% 33,200 Subordinated CDB (2) October 2007 October 2012 CDI + 0.45% 450,000 Subordinated CDB (2) December 2007 December 2014 CDI + 0.60% 10,000 Subordinated CDB (2) 1sr quarter of 2008 1st quarter of 2013 CDI + 0.60% 817,310 Subordinated CDB (2) 1st quarter of 2008 2nd quarter of 2013 106.5% of CDI 38,000 Subordinated CDB (2) 2nd quarter of 2008 2nd quarter of 2013 107% of CDI 10,400 Subordinated CDB (2) 3rd quarter of 2008 3rd quarter of 2015 119.8% of CDI 400,000 Subordinated credit facility (3) December 2004 December 2009 Libor + 2% 350,550 Subordinated euronotes 2nd half of 2001 August 2011 10.0% 457,465 Subordinated euronotes August 2001 August 2011 4.25% 625,008 Subordinated bonds April 2008 April 2033 3.50% 64,555 Subordinated bonds October 2008 October 2033 4.50% 45,400 Eurobonds -Perpetual Non-cumulative Junior Subordinated Securities (4) July 2005 Not determined 8.70% 1,195,250 Preferred shares December 2002 March 2015 3.04% 1,388,841
(1) Subordinated CDBs may be redeemed from November 2011; (2) Subordinated CDBs may not be redeemed in advance; (3) The debt may not be fully redeemed in advance. The return is calculated by using the Libor rate plus 2%, adjusted every six-month period; (4) The debt may be fully redeemed only at the option of the issuer from July 29, 2010 or at each subsequent payment.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 104 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
NOTE 11 - INSURANCE, PENSION PLAN AND CAPITALIZATION OPERATIONS
a) Composition of the technical provisions
LIFE AND INSURANCE CAPITALIZATION TOTAL PENSION PLAN 09/30/2009 09/30/2008 09/30/2009 09/30/2008 09/30/2009 09/30/2008 09/30/2009 09/30/2008 Mathematical provision of benefits to be granted and benefits gr 33,311 6,950 40,106,721 23,502,204 - - 40,140,032 23,509,154 Unearned premiums 2,876,662 1,131,800 382,208 333,318 - - 3,258,870 1,465,118 Mathematical provision for redemptions - - - - 2,133,720 1,116,566 2,133,720 1,116,566 Raffle contingency - - - - 36,489 35,149 36,489 35,149 Unsettled claims 2,090,868 976,859 127,027 82,619 - - 2,217,895 1,059,478 Financial surplus 2,214 1,976 446,323 318,818 - - 448,537 320,794 IBNR 680,024 187,910 65,179 36,269 - - 745,203 224,179 Financial variation 494 - 110,475 104,425 - - 110,969 104,425 Premium deficiency 137,687 81,238 89,774 17,430 - - 227,461 98,668 - September0 Insufficient contribution - - 378,765 73,115 - - 378,765 73,115 Other 67,026 19,850 188,792 93,095 23,895 8,631 279,713 121,576 TOTAL 5,888,286 2,406,583 41,895,264 24,561,293 2,194,104 1,160,346 49,977,654 28,128,222 105 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
b) Assets Guaranteeing Technical Provisions - SUSEP
LIFE AND INSURANCE CAPITALIZATION TOTAL PENSION PLAN 09/30/2009 09/30/2008 09/30/2009 09/30/2008 09/30/2009 09/30/2008 09/30/2009 09/30/2008 Interbank investments – Money market 986,616 211,095 1,003,502 315,958 832,985 277,354 2,823,103 804,407 Securities and derivative financial instruments 2,678,020 1,333,405 40,593,089 24,014,946 1,401,164 904,363 44,672,273 26,252,714 PGBL/VGBL fund quotas (1) - - 36,403,697 21,893,675 - - 36,403,697 21,893,675 Other 2,678,020 1,333,405 4,189,392 2,121,271 1,401,164 904,363 8,268,576 4,359,039 Government 2,004,041 714,423 3,282,754 870,504 739,727 218,302 6,026,522 1,803,229 Private 673,979 618,982 906,638 1,250,767 661,437 686,061 2,242,054 2,555,810 Receivables from insurance and reinsurance operations (2) 2,131,673 1,181,507 306,074 278,408 - - 2,437,747 1,459,915 Credit rights 646,277 576,497 306,074 278,408 - - 952,351 854,905 Reinsurance 1,485,396 605,010 - - - - 1,485,396 605,010 Escrow deposits for loss 100,853 105,985 8,943 9,034 - - 109,796 115,019 TOTAL 5,897,162 2,831,992 41,911,608 24,618,346 2,234,149 1,181,717 50,042,919 28,632,055 (1) The PGBL and VGBL plans securities portfolios, the ownership and embedded risks of which are the customers’ responsibility, is recorded as securities, as determined by SUSEP, with a contra-entry to liabilities in
- September0 the Pension Plan Technical Provisions account. (2) Recorded under Other receivables and Other assets.
c) Results of Operations
LIFE AND INSURANCE CAPITALIZATION TOTAL PENSION PLAN 01/01 to 01/01 to 01/01 to 01/01 to 01/01 to 01/01 to 01/01 to 01/01 to 09/30/2009 09/30/2008 09/30/2009 09/30/2008 09/30/2009 09/30/2008 09/30/2009 09/30/2008 Income from financial operations 161,923 101,168 252,419 169,917 45,512 30,677 459,854 301,762 Financial income from insurance, pension plan and capitalization operations 245,036 114,295 3,159,018 1,382,902 145,233 89,485 3,549,287 1,586,682 Financial expenses from insurance, pension plan and capitalization operations (83,113) (13,127) (2,906,599) (1,212,985) (99,721) (58,808) (3,089,433) (1,284,920) Results from insurance, pension plan and capitalization operations 1,032,140 458,342 358,253 316,091 331,018 236,480 1,721,411 1,010,913 Premiums and contributions 4,290,974 1,880,550 6, 907,200 4,765,187 1,201,215 776,105 12,399,389 7,421,842 Changes in technical provisions 158,320 (118,074) (6,247,529) (4,270,926) (820,652) (523,155) (6,909,861) (4,912,155) Expenses for claims (2,251,747) (1,024,899) (196,490) (145,168) - - (2,448,237) (1,170,067) Selling expenses (962,445) (272,121) (35,077) (20,996) (22,730) (1,144) (1,020,252) (294,261) Expenses for benefits and raffles - - (34,936) (8,797) (26,836) (14,873) (61,772) (23,670) Other revenues and expenses (202,962) (7,114) (34,915) (3,209) 21 (453) (237,856) (10,776) TOTAL 1,194,063 559,510 610,672 486,008 376,530 267,157 2,181,265 1,312,675 106 NOTE 12 - CONTINGENT ASSETS AND LIABILITIES AND LEGAL LIABILITIES – TAX AND SOCIAL SECURITY
ITAÚ UNIBANCO HOLDING and its subsidiaries are involved in contingencies in the ordinary course of their businesses, as follows:
a) Contingent Assets: there are no contingent assets recorded.
b) Contingent Liabilities: these are calculated and classified as follows:
- Calculation criteria:
Civil lawsuits: calculated upon judicial notification, and adjusted monthly:
- Collective (lawsuits related to claims considered similar and usual and the amounts of which are not considered significant): according to the statistical references per group of lawsuits, type of legal body (Small Claims Court or Regular Court) and claimant; or
- Individual (lawsuits related to claims considered unusual and the amounts of which are considered significant): at the claimed indemnity amount, based on the evidence presented and on the evaluation of legal advisors – which considers case law, legal opinions raised, evidence produced in the records and the judicial decisions to be issued – relating to the risk level of loss of lawsuits.
These are adjusted to the amounts deposited as guarantee for their execution or to the definitive execution amount (indisputable amount) when the claim is awarded a final and unappealable judgment.
Labor claims: these are calculated upon judicial notification and adjusted monthly by the moving average of payment of lawsuits closed in the last 12 months plus the average cost of fees paid for lawsuits related to claims considered similar and usual and adjusted to the amounts deposited in guarantee, to the execution amount (indisputable amount) when it is in the stage of being a final and unappealable decision, or based on the individual analysis of the potential amount of probable loss for lawsuits with significant amounts.
Tax and social security lawsuits: calculated upon judicial notification of administrative proceedings based on their monthly adjusted amounts.
Other risks: calculated mainly based on the assessment of credit risk on joint obligations.
- Contingencies classified as probable: are recognized in the accounting books and comprise Civil Lawsuits demanding compensation for property damage and pain and suffering, such as protest of bills, return of checks, and inclusion of information in the credit protection registry, most of these actions being filed in the Small Claims Court and therefore limited to 40 minimum monthly wages; Labor Claims seeking the recovery of alleged labor rights based on labor legislation specific to the related profession, such as overtime, salary equalization, reinstatement, transfer allowance, pension plan supplement and other; Tax and Social Security represented mainly by lawsuits and administrative proceedings involving federal and municipal taxes; and Other Risks represented basically by the joint obligation for securitized rural loans.
The table below shows the changes in the respective provisions for contingent liabilities and the respective escrow deposits balances:
01/01 to 01/01 to 09/30/2009 09/30/2008 Change in provision for contingent liabilities Tax and social Civil Labor Other Total Total security Opening Balance 2,124,019 2,857,105 2,415,615 251,235 7,647,974 3,655,925 (-) Contingencies guaranteed by indemnity clause (Note 4n I) (125,528) (551,139) (15,784) - (692,451) (656,291) Subtotal 1,998,491 2,305,966 2,399,831 251,235 6,955,523 2,999,634 Restatements/Charges 56,148 157,211 133,352 - 346,711 99,521 Changes in the period reflected in results (Notes 13f and 13i) 944,073 456,124 62,262 5,132 1,467,591 1,151,673 Increase (*) 1,168,276 546,103 71,795 5,132 1,791,306 1,304,918 Write-offs through reversal (224,203) (89,979) (9,533) - (323,715) (153,245) Payments (686,722) (401,309) (32,917) - (1,120,948) (577,131) Subtotal 2,311,990 2,517,992 2,562,528 256,367 7,648,877 3,673,697 (+) Contingencies guaranteed by indemnity clause (Note 4n I) 172,335 579,151 12,372 - 763,858 728,265 Closing balance (Note 13c) 2,484,325 3,097,143 2,574,900 256,367 8,412,735 4,401,962 Closing balance at 09/30/2008 (Note 13c) 1,548,651 1,878,083 857,038 118,190 4,401,962 Escrow deposits at 09/30/2009 (Note 13a) 1,017,249 1,403,107 937,621 - 3,357,977 Escrow deposits at 09/30/2008 (Note 13a) 671,382 888,909 281,368 - 1,841,659 (*) Civil provisions includes the provision for economic plans amounting to R$ 250,874 (R$ 266,524 from January 1 to September 30, 2008) (Note 22l).
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 107 - Contingencies classified as possible: not recognized in the accounting books and comprise Civil Lawsuits amounting to R$ 372,699 and Tax and Social Security Lawsuits amounting to R$ 5,073,426. The principal characteristics of these lawsuits are described below:
Claim for of corporate income tax (IRPJ), social contribution (CSLL), PIS and COFINS, as tax authorities understand there has been unreported income due to assignment of usufruct of quotas and shares, recorded as a contra-entry to the investment account in permanent assets – R$ 1,276,180;
Claim for of corporate income tax (IRPJ) and social contribution (CSLL) on operations related to transfer of shares of companies located abroad for payment of capital of other companies – R$ 800,097;
ISS – Banking Institutions – R$ 308,367: refers to tax assessments notices issued by municipalities for collection of ISS on amounts recorded in several accounts, on the grounds of being service revenue. An administrative final decision or tax foreclosure is pending;
Deductibility of losses in receipt of loans and discounts granted in renegotiation of loans – R$ 284,758;
Dismissal of offset request – R$ 269,271: offset requests which were not validated due to formal issues or alleged lack of evidence of credit liquidity. Issue discussed at the administrative level, in which the company stated its defense and exhibited documentation evidencing credit liquidity;
Levy of social security contributions on non-compensatory amounts – R$ 218,038: administrative and court discussion on the portions that, according to the company’s understanding, are not part of contribution salary for social security tax purposes;
Deductibility of goodwill in purchase of investments – R$ 197,267: assessment notices that discuss the deduction of goodwill of merged companies;
Acquisition of Customers Portfolio - R$ 169,367: aims at recognizing the deduction, from the IRPJ and CSLL calculation basis, of expenses assumed by Banco Itaú with the amortization of assets related to the acquisition of the customers portfolio of the Group banks;
IRPJ/PDD (income tax/Allowance for loan losses) – R$ 163,512: reject the Regulatory Instruction (IN) No. 80/93, which reduced the percentage from 1.5% to 0.5% for realization of the Allowance for Loan Losses in base year 1993, calculated by adopting the IN No. 76/87 and the CMN Resolution No. 1,748, of August 31, 1990. The bank makes allegations about the impossibility of applying the rule to events occurred in the fiscal year when it was enacted (principle of anteriority). A suspension was awarded for the bank’s appeal, however, the judgment by the Federal Regional Court of the 3rd Region is pending;
Apportionment of Net Assets by Book Value – R$ 128,861: refers to the tax assessment notice issued due to the deduction of capital loss computed in the winding-up and liquidation of investments. Awaiting Court's decision;
Required the corporate income tax (IRPJ) arising from offset of losses for 2005, which, according to tax authorities, had been carried out above the balance stated for the Federal Revenue Service, in view of the ex officio changes made to the Corporate Income Tax Declaration (DIPJ) submitted by the taxpayer – R$ 97,486;
Differences in the completion of Declaration of Federal Contributions and Taxes (DCTF) – R$ 82,990: required levy of withholding income tax (IRRF) arising from the challenge, by the Federal Revenue Service authorities, concerning the completion of the DCTF and missing payments (DARFs);
Assessment notices about the Declaration of Federal Contributions and Taxes (DCTF) – R$ 74,201: electronic assessment notices issued by the Federal Revenue Service, which defense is stated at the administrative level, in which the submitted documentation is being analyzed;
Criteria for taxation of revenues made available abroad - R$ 69,394: assessment notices in relation to which the inspection authorities discuss criteria for determining the calculation basis and taxable event;
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 108 Offset of tax loss of companies merged without the 30% limitation – R$ 67,784: assessment notice which discusses the application of a 30% limit when offsetting tax loss carryforwards, in case of merger of company;
ITR (Rural tax land) - R$ 62,197: Refers to collection of ITR amounts related to farms, received as payment in kind, with arbitrage of calculation basis, due to failure to evidence that a portion of the land is a legal reserve;
Levy of ISS on leasing operations – R$ 50,553: Tax assessment notices and/or tax foreclosures of municipalities that allege the levy of ISS on leasing operations in their territories.
In ITAÚ UNIBANCO HOLDING CONSOLIDATED, the following are in guarantee of voluntary resources restricted, deposited or recorded in the amount below:
09/30/2009 09/30/2008 Securities 834,732 1,285,614 Deposits in guarantee 3,484,817 1,998,828 Permanent assets (*) 771,371 951,941 (*) As per article 32 of Law No. 10,522, of July 19, 2002. On April 10, 2007, in the unconstitutionality lawsuit No. 1,976, the Federal Supreme Court ruled unconstitutional the requirement of guarantees for considering voluntary appeals. The company is requesting the cancellation of the pledging of guarantees to the Federal Revenue Service.
The Receivables balance arising from reimbursements of contingencies totals R$ 1,024,929 (R$ 923,194 at 09/30/2009) (Note 13a), basically represented by the guarantee in the Banco Banerj S.A. privatization process occurred in 1997, in which the State of Rio de Janeiro created a fund to guarantee the equity recomposition from losses on Civil, Labor and Tax Contingencies.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 109 c) Legal Liabilities – Tax and Social Security and Escrow Deposits for filing Legal Processes – recognized at the full amount being questioned and respective escrow deposits, as follows:
01/01 to 01/01 to Change in legal liabilities 09/30/2009 09/30/2008 Opening balance 9,178,381 5,433,380 Changes in the period reflected in results 2,770,421 1,109,957 Charges on taxes 673,065 288,705 Net increase for the period 2,226,192 890,376 Write-offs through reversal (*) (128,836) (69,124) Payments (184,032) (59,095) Closing balance (Note 14c) 11,764,770 6,484,242 Probability of loss Probable 1,432,933 1,076,325 Possible 1,122,729 296,046 Remote 9,209,108 5,111,871 (*) Refers basically to the Reversal of Provision for PIS Constitutional Amendment No. 17/97 x principles of anteriority over 90 days and non-retroactivity.
01/01 to 01/01 to Change in escrow deposits 09/30/2009 09/30/2008 Opening balance 4,422,972 3,013,026 Appropriation of income 403,185 181,364 Changes in the period 188,550 295,239 Deposited 390,532 329,781 Withdrawals (17,188) (34,542) Conversion into income (184,794) - Closing balance (Note 13a) 5,014,707 3,489,629
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 110 The main natures of processes are described as follows:
PIS e COFINS X Law No. 9,718/98 – R$ 7,315,511 – Assert the right of paying contributions to PIS and COFINS on revenue, not adopting the provisions of Article 3, paragraph 1, of Law No. 9,718, of November 27, 1998, which established the inappropriate extension of the calculation bases of these contributions. The corresponding escrow deposit totals R$ 1,057,623;
IRPJ and CSLL X Profit Earned Abroad – R$ 1,144,849. Aimed at rejecting the requirement set forth by Regulatory Instruction No. 213 of October 7, 2002, in view of its illegality, determining the inclusion of equity in earnings in the calculation of taxable income and the CSLL calculation basis, including that from disposal of investment abroad. The corresponding escrow deposit totals R$ 558,794;
CSLL X Equality – R$ 703,899 – Assert the right of paying CSLL at 8%, applicable to companies in general, according to the heading of Article 19 of Law No. 9,249 of December 26, 1995, rejecting the provisions of paragraph 1 therein, which sets forth a differentiated rate (18%) for financial institutions, in view of the infraction to the principle of equality. The corresponding escrow deposit totals R$ 350,057;
CSL x Non Employers – R$ 433,675 – Assert the right of paying social contribution on net income (CSLL), since it does not fit into the employers concept (article 2 of Consolidation of Labor Laws - CLT), thus recognizing the illegality and unconstitutionality of Law No. 7,689/88, which unduly increased the CSLL calculation basis, considering any company as a debtor. The escrow deposit balance totals R$ 358,263.
PIS X Constitutional Amendments Nos. 10/96 and 17/97 – R$ 338,788– Aimed at rejecting the levy of PIS, based on principles of anteriority over 90 days, and non-retroactivity of Constitutional Amendments Nos. 10/96 and 17/97, and nonexistence of legislation for this period. Successively, aimed at paying PIS over the mentioned period based on Supplementary Law No. 7/70. The corresponding escrow deposit totals R$ 67,655;
INSS X Supplementary Law No. 84/96 and Additional rate of 2.5% – R$ 235,874 – Aimed at rejecting the levy of social security contribution at 15%, as well as an additional rate of 2.5%, on compensation paid to service providers that are individuals and managers, set forth by Supplementary Law No. 84/96, in view of its unconstitutionality, as this contribution has the same taxable year and income tax calculation basis, going against the provisions of Articles 153, item III, 154, item I, 156, item III and 195, paragraph 4, of Federal Constitution. The corresponding escrow deposit totals R$ 274,194;
According to the opinion of the legal advisors, ITAÚ UNIBANCO HOLDING and its subsidiary companies are not involved in any other administrative proceedings or lawsuits that may significantly affect the results of their operations. The combined evaluation of all existing provisions for all contingent liabilities and legal obligations, which are recognized through the adoption of statistical models for claims involving small amounts and separate analysis by internal and external legal advisors of other cases, showed that the amounts provided for are sufficient, according to the CMN Resolution No. 3,535 of January 31, 2008
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 111 NOTE 13 – BREAKDOWN OF ACCOUNTS
a) Other sundry receivables
09/30/2009 09/30/2008 Deferred tax assets (Note 14b I) 27,426,886 9,443,515 Social contribution for offset (Note 14b I) 955,427 895,907 Taxes and contributions for offset 2,974,685 1,615,743 Escrow deposits in guarantee for provision for contingent liabilities (Note 12b) 6,842,794 3,840,487 Escrow deposits for legal liabilities – tax and social security (Note 12c) 5,014,707 3,489,629 Escrow deposits for foreign fund raising program 349,000 548,289 Receivables from reimbursement of contingent liabilities (Note 12b) 1,024,929 923,194 Receivables from sale of Credicard brand/ Visa Inc. and Visa Net shares - 248,755 Sundry domestic debtors 768,652 387,116 Sundry foreign debtors 119,123 203,322 Recoverable payments 34,953 28,996 Salary advances 177,765 100,782 Amounts receivable from related companies 50,657 4,853 Operations without credit granting characteristics 498,110 142,335 Securities and credits receivable 805,534 158,481 (Allowance for other loan losses) (307,424) (16,146) Other 142,508 112,006 Total 46,380,196 21,984,929
At ITAÚ UNIBANCO HOLDING, Other Sundry Receivables are basically composed of Taxes and Contributions for Offset of R$ 146,329 (R$ 60,885 at 09/30/2008) and Deferred Tax Assets of R$ 836,564 (R$ 383,696 at 09/30/2008) (Note 14b I).
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 112 b) Prepaid expenses
09/30/2009 09/30/2008 Commissions 2,280,357 2,160,548 Related to vehicle financing 1,622,283 1,986,626 Related to insurance and pension plan 515,968 155,481 Other 142,106 18,441 Credit Guarantee Fund (*) 760,702 - Advertising 384,314 45,180 Other 250,924 134,855 Total 3,676,297 2,340,583 (*) Refers to the spontaneous payment, equivalent to the prepayment of installments of the contribution to Fundo Garantidor de Crédito (Brazilian deposit guarantee fund), according to BACEN Circular No. 3,416, of 10/24/2008.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 113 c) Other sundry liabilities
09/30/2009 09/30/2008 Provision for contingent liabilities (Note 12b) 8,412,735 4,401,962 Provision for sundry payments 1,947,971 1,096,301 Personnel provision 1,273,277 807,662 Sundry creditors - local 765,496 517,621 Sundry creditors - foreign 208,288 129,471 Liabilities for official agreements and rendering of payment services 447,230 293,746 Related to insurance operations 1,110,943 250,745 Liabilities for purchase of assets and rights 13,182 89,593 Creditors of funds to be released 316,156 215,171 Funds from consortia participants 144,613 53,336 Provision to cover actuarial deficit (Note 19c) 121,674 27,114 Provision for integration expenditures with ITAÚ UNIBANCO merger (1) 978,978 - Provision for health insurance (2) 540,808 - Expenses for lease interests (Note 4i) 122,889 - Other 278,197 24,827 Total 16,682,437 7,907,549 (1) Provision set up at 12/31/2008 in the amount of R$ 1,330,800 to cover expenditures on communication with customers, adequacy of systems and personnel. (2) Provision set up to cover possible future deficits up to the total discontinuance of the portfolio, arising from the difference of adjustments to monthly installments, authorized annually by the regulatory body, and the actual variation of hospital costs that affect the compensation of claims.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 114 d) Banking service fees
01/01 to 01/01 to 09/30/2009 09/30/2008 Asset management 1,629,437 1,450,992 Funds management fees 1,601,481 1,431,624 Consortia management fees 27,956 19,368 Current account services 335,799 184,131 Credit cards 4,233,125 1,895,941 Annual fees 644,831 526,336 Other services 3,588,294 1,369,606 Relationship with stores 3,292,224 1,052,753 Credit card processing 296,070 316,853 Sureties and credits granted 950,175 963,799 Loan operations 571,434 824,988 Guarantees provided 378,741 138,811 Receipt services 885,651 591,598 Collection fees 731,381 441,688 Collection services 154,270 149,911 Other 931,829 835,844 Brokerage 221,006 292,951 Custody services and management of portfolio 114,848 109,568 Economic and financial advisory 118,501 115,144 Foreign exchange services 50,045 47,976 Consultation to Serasa 20,610 4,402 Other services 406,820 265,803 Total 8,966,016 5,922,305
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 115 e) Income from bank charges
01/01 to 01/01 to 09/30/2009 09/30/2008 Loan operations/registration 760,911 808,771 Deposit account 117,986 46,629 Transfer of funds 84,726 53,373 Service package fees and other 1,066,348 664,898 Total 2,029,971 1,573,671
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 116 f) Personnel expenses
01/01 to 01/01 to 09/30/2009 09/30/2008 Compensation (4,235,457) (2,697,279) Charges (1,397,762) (797,208) Welfare benefits (1,056,313) (646,223) Training (79,427) (80,985) Subtotal (6,768,959) (4,221,695) Severance pay (9,115) (88,624) Labor claims (Note 12b) (456,124) (302,363) Total (7,234,198) (4,612,682)
g) Other administrative expenses
01/01 to 01/01 to 09/30/2009 09/30/2008 Data processing and telecommunications (1,851,804) (1,299,627) Depreciation and amortization (990,457) (434,981) Facilities (1,360,028) (692,694) Third-party services (2,138,417) (949,424) Financial system services (260,860) (155,953) Advertising, promotions and publications (641,529) (395,404) Transportation (280,324) (204,339) Materials (211,438) (168,247) Security (280,042) (177,397) Travel expenses (87,280) (66,355) Legal (27,561) (24,334) Other (301,076) (253,686) Total (8,430,816) (4,822,441)
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 117 h) Other operating revenues
01/01 to 01/01 to 09/30/2009 09/30/2008 Reversal of operating provisions 128,836 198,866 Legal liabilities – tax and social security (Note 12c) 128,836 69,124 Other - 129,742 Recovery of charges and expenses 223,940 120,889 Other 220,475 239,907 Total 573,251 559,662
i) Other operating expenses
01/01 to 01/01 to 09/30/2009 09/30/2008 Provision for contingencies (Note 12b) (1,011,467) (949,153) Civil (944,073) (601,711) Tax and social security (62,262) (326,741) Other (5,132) (20,701) Selling - credit cards (1,083,781) (412,401) Claims (413,516) (204,233) Joint venture (*) (550,000) - Amortization of goodwill on investments (Notes 2a and 22l) (556,576) (29,013) Refund of interbank costs (Note 22m) (168,432) (77,666) Other (710,163) (259,710) Total (4,493,935) (1,932,176)
(*) Amount paid on August 28, 2009 to Companhia Brasileira de Distribuição S.A., in order to exclude the obligation of exclusivity of ITAÚ UNIBANCO in the joint venture agreement related to Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento (Note 22l).
j) Non-operating income
01/01 to 01/01 to 09/30/2009 09/30/2008 Sale of investments (Note 22l) 345,218 291,587 MasterCard Inc. - 82,964 Visa Inc. and Visa Net 345,218 144,287 BM&FBovespa - 64,336 Other 44,453 22,891 Total 389,671 378,814
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 118 NOTE 14 - TAXES
a) Composition of expenses for taxes and contributions
I - We show below the Income Tax and Social Contribution due on the operations for the period and on temporary differences arising from additions and exclusions:
01/01 to 01/01 to Due on operations for the period 09/30/2009 09/30/2008 Income before income tax and social contribution 14,876,906 8,132,477 Charges (Income Tax and Social Contribution) at the rates in effect (Note 4o) (5,950,762) (3,036,220)
Increase/decrease to Income Tax and Social Contribution charges arising from: Permanent (additions) exclusions (492,905) 834,036 Investments in affiliates 51,153 39,447 Foreign exchange variation on investments abroad (1,906,153) 177,792 Interest on capital 1,118,381 486,691 Dividends, interest on external debt bonds and tax incentives 370,970 274,583 Amortization of goodwill on purchase of investments (139,144) - Other 11,888 (144,477) Temporary (additions) exclusions 500,651 1,588,190 Allowance for loan losses (2,112,519) (520,214) Excess (insufficiency) of depreciation of leased assets 2,294,691 1,929,527 Adjustment to market value of trading securities and derivative financial instruments and adjustments from operations in futures markets 165,538 74,305 Legal liabilities – tax and social security, contingent liabilities and restatement of escrow deposits (585,363) (266,866) Realization of goodwill on purchase of investment 982,394 346,064 Integration expenditures with ITAÚ UNIBANCO merger 141,536 - Other (385,626) 25,374
(Increase) Offset of tax losses/ social contribution loss carryforwards (827,348) (1,338,955) Expenses for income tax and social contribution (6,770,364) (1,952,949) Related to temporary differences Increase (reversal) for the period 326,697 (112,101) Prior periods increase (reversal) 281,342 664,907 Income (expenses) from deferred taxes 608,039 552,806 Total income tax and social contribution (6,162,325) (1,400,143)
II - Composition of tax expenses:
01/01 to 01/01 to 09/30/2009 09/30/2008 PIS and COFINS (2,413,205) (1,203,249) ISS (363,813) (249,818) Other (259,899) (179,024) Total (Note 4o) (3,036,917) (1,632,091)
At ITAÚ UNIBANCO HOLDING tax expenses are basically composed of PIS and COFINS in the amount of R$ 14,623 (R$ 14,615 from 01/01 to 09/30/2008).
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 119 III- Tax effects on foreign exchange management of investments abroad
In order to minimize the effects on income in connection with the foreign exchange variation on investments abroad, net of respective tax effects, ITAÚ UNIBANCO HOLDING carries out derivative transactions in foreign currency (hedge), as mentioned in Note 22b.
Results of these transactions are considered in the calculation basis of income tax and social contribution, according to their nature, while the foreign exchange variation on investments abroad is not included therein, pursuant to tax legislation in force.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 120 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
b) Deferred taxes
I - The deferred tax asset balance and its changes, segregated based on its origin and disbursements incurred, are represented as follows:
PROVISIONS DEFERRED TAX ASSETS Realization / 09/30/2009 09/30/2008 12/31/2008 Increase 09/30/2009 09/30/2008 Reversal Reflected in income and expense accounts 24,921,860 (6,348,802) 8,766,196 27,339,254 9,402,046 Related to income tax and social contribution loss carryforwards 3,146,964 (1,189,264) 1,701,057 3,658,757 1,765,764
Related to disbursed provisions 6,615,676 (2,627,857) 4,360,784 8,348,603 3,364,299 Allowance for loan losses 5,032,128 (2,002,045) 4,126,626 7,156,709 2,583,589 Adjustment to market value of securities and derivative financial instruments (assets/liabilities) 429,878 (429,878) 172,052 172,052 391,484 Allowance for real estate 89,719 (35,755) 19,585 73,549 30,979 Goodwill on purchase of investments 819,597 (101,590) 13,312 731,319 276,610 Other 244,354 (58,589) 29,209 214,974 81,637
Related to non-disbursed provisions (*) 45,482,066 13,126,007 15,159,220 (2,531,681) 2,704,355 15,331,894 4,271,983 Related to the operation 39,378,066 10,876,007 12,510,280 (2,100,749) 2,704,355 13,113,886 3,506,983
- September0 Legal liabilities – tax and social security 7,621,644 3,263,997 1,624,954 (16,343) 806,783 2,415,394 895,553 Provision for contingent liabilities 7,355,899 3,555,507 2,429,883 (391,090) 677,111 2,715,904 1,229,499 Civil 2,311,990 1,424,151 766,379 (321,465) 458,459 903,373 551,883 Labor 2,215,595 1,289,857 754,920 (18,439) 99,253 835,734 364,017 Tax and social security 2,562,528 841,499 834,325 (50,958) 87,893 871,260 313,599
Other 265,786 - 74,259 (228) 31,506 105,537 - Adjustments of operations carried out in futures settlement market 55,800 - 32,411 (26,361) 9,296 15,346 - Goodwill on purchase of investments 17,441,924 1,784,712 6,646,097 (823,790) 107,947 5,930,254 606,802 Provision for integration expenditures with ITAÚ UNIBANCO merger 978,978 - 452,472 (119,620) - 332,852 - Provision related to health insurance operations 540,808 - 212,254 - 4,069 216,323 - Other non-deductible provisions 5,383,013 2,271,791 1,112,209 (723,545) 1,099,149 1,487,813 775,129 Related to provisions in excess of the minimum required not disbursed – allowance for loan losses 6,104,000 2,250,000 2,648,940 (430,932) - 2,218,008 765,000
Reflected in stockholders’ equity accounts – adjustment to market value of available-for-sale securities (Note 2b) 219,080 - 193,741 (106,109) - 87,632 41,469
Total 45,701,146 13,126,007 25,115,601 (6,454,911) 8,766,196 27,426,886 9,443,515 Social contribution for offset arising from Option foreseen in article 8 of Provisional Measure No. 2,158-35 of 08/24/2001 1,295,804 (340,377) - 955,427 895,907 (*) From a financial point of view, rather than recording the provision of R$ 45,482,066 (R$ 13,126,007 at 09/30/2008) and deferred tax assets of R$ 15,331,894 (R$ 4,271,983 at 09/30/2008), only the net provisions of the corresponding tax effects should be considered, which would reduce the total deferred tax assets from R$ 27,426,886 (R$ 9,443,515 at 09/30/2008) to R$ 12,094,992 (R$ 5,171,532 at 09/30/2008).
At ITAÚ UNIBANCO HOLDING, deferred tax assets totaled R$ 836,564 (R$ 386,696 at 09/30/2008) and are basically represented by tax losses and social contribution losses
121 carryforwards of R$ 768,911 (R$ 342,355 at 09/30/2008), which is expected to be realizable in up to 1 year, and legal liabilities – tax and social security of R$ 64,714 (R$ 39,667 at 09/30/2008), which effective realization depends on the development of the lawsuit and its final and unappealable judgment. Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
II- Provision for Deferred Income Tax and Social Contribution balance and its changes are shown as follows:
Realization/ 12/31/2008 Increase 09/30/2009 09/30/2008 reversal
Reflected in income and expense accounts 6,389,760 (157,268) 1,867,201 8,099,693 6,644,617 Depreciation in excess - leasing 5,604,351 - 1,567,972 7,172,323 5,489,112 Taxation of results abroad - Capital gains 20,142 - 11,088 31,230 24,672 Adjustments of operations carried out in futures settlement markets 56,552 (14,005) 47,241 89,788 313,344 Adjustments to market value of trading securities and derivative financial instruments 101,261 (33,957) 6,557 73,861 337,258 Restatement of escrow deposits and contingent liabilities 449,341 - 208,927 658,268 340,894 Income on sale of permanent asset items and rights 67,965 (67,965) - - 69,741 Other 90,148 (41,341) 25,416 74,223 69,596 Reflected in stockholders’ equity accounts – adjustment to market value of available-for-sale securities (Note 2b) 18,618 (8,324) 244,207 254,501 33,885
Total 6,408,378 (165,592) 2,111,408 8,354,194 6,678,502 (1,869,952) - September0 122 III - The estimate of realization and present value of deferred tax assets and social contribution for offset, arising from Provisional Measure 2,158-35 of August 24, 2001 and from the Provision for Deferred Income Tax and Social Contribution existing at September 30, 2009, in accordance with the expected generation of future taxable income, based on the history of profitability and technical feasibility studies, are:
Deferred tax assets Provision for Tax loss/ social Social contribution deferred income Net deferred Temporary contribution loss Total for offset tax and social taxes differences carryforwards contribution
2009 4,579,396 - 4,579,396 69,643 (403,901) 4,245,138 2010 4,519,640 669,017 5,188,657 301,902 (1,624,276) 3,866,283 2011 4,080,866 887,607 4,968,473 292,093 (1,887,659) 3,372,907 2012 3,425,948 618,175 4,044,123 195,582 (2,187,878) 2,051,827 2013 3,395,425 153,384 3,548,809 29,611 (1,504,555) 2,073,865 After 2013 3,766,854 1,330,574 5,097,428 66,596 (745,925) 4,418,099 Total 23,768,129 3,658,757 27,426,886 955,427 (8,354,194) 20,028,119
Present value (*) 21,003,210 3,107,522 24,110,732 857,518 (7,341,852) 17,626,398 (*) The average funding rate, net of tax effects, was used to determine the present value.
The projections of future taxable income include estimates related to macroeconomic variables, exchange rates, interest rates, volume of financial operations and services fees and others which can vary in relation to actual data and amounts.
Net income in the financial statements is not directly related to taxable income for income tax and social contribution, due to differences existing between accounting criteria and tax legislation, besides corporate aspects. Accordingly, we recommend that the trend of the realization of deferred tax assets arising from temporary differences, income tax and social contribution loss carryforwards be not used as an indication of future net income.
IV - In view of the unconstitutionality lawsuit related to the increase in the social contribution rate, established by Articles 17 and 41 of Law No. 11,727 of June 24, 2008, filed on June 26, 2008 by the National Confederation of the Financial System (CONSIF), deferred tax assets were recorded up to the amount added to the Tax Liabilities, while the amount of R$ 2,372,365 is unrecorded (R$ 670,017 at 09/30/2008).
Unrecorded deferred tax assets amount to R$ 746,843 at September 30, 2008.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 123 c) Tax and social security contributions
09/30/2009 09/30/2008 Taxes and contributions on income payable 2,486,836 562,909 Taxes and contributions payable 850,584 362,828 Provision for deferred income tax and social contribution (Note 14b lI) 8,354,194 6,678,502 Legal liabilities – tax and social security (Note 12c) 11,764,770 6,484,242 Total 23,456,384 14,088,481
At ITAÚ UNIBANCO HOLDING the balance of Tax and Social Security Contributions totals R$ 336,766 (R$ 179,943 at 09/30/2008) and is basically comprised of Legal Liabilities of R$ 301,068 (R$ 177,153 at 09/30/2008) and Taxes and Contributions Payable of R$ 33,190 (R$ 697 at 09/30/2008).
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 124 d) Taxes paid or provided for and withheld from third parties
The amount of taxes paid or provided for is basically levied on income, revenue and payroll. In relation to the amounts withheld and collected from third parties, the Company started to take into consideration the interest on capital paid and on the service provision, in addition to that levied on financial operation.
09/30/2009 09/30/2008 Taxes paid or provided for 11,456,439 4,986,690 Taxes withheld and collected from third parties 5,694,710 3,582,435 Total 17,151,149 8,569,125
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 125 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
NOTE 15 – PERMANENT ASSETS
a) Investments
I - Changes of investments
Adjustments to Equity in earnings Corporate Dividends and Equity in Balances at Amortization of marketable of subsidiaries C o m p a n i e s restructuring and interest on capital earnings of Balances at Balances at 12/31/2008 goodwill securities of from 01/01 to Other received (1) subsidiaries 09/30/2009 09/30/2008 subsidiaries 06/30/2008
Domestic 57,366,472 (4,752) 788 (7,568,071) 5,015,599 650,295 55,460,331 32,678,026 5,000,352 Itaú Unibanco S.A. 39,496,914 (4,752) (500,000) (393,161) 3,257,098 564,898 42,420,997 13,289,821 1,688,463 Banco Itaucard S.A. (2) 8,449,001 - 249,396 (6,274,910) 29,005 (48) 2,452,444 8,951,159 1,772,861 Banco Itaú BBA S.A. 4,265,628 - 251,392 (708,963) 1,210,357 54,819 5,073,233 4,944,402 670,319 Itauseg Participações S.A. 3,483,873 - - - 249,134 15,110 3,748,117 3,589,032 536,727 Itaú BBA Participações S.A. 1,253,036 - - (191,037) 322,696 15,514 1,400,209 1,443,739 194,065 Itaú Corretora de Valores S.A. (2) 418,020 - - - (52,691) 2 365,331 459,873 137,917 Foreign 2,315,336 (38,556) - - (321,029) 20,037 1,975,788 1,987,530 265,857 Itaú Chile Holdings, Inc. 1,953,176 (33,931) - - (295,169) 13,075 1,637,151 1,653,770 197,612 Banco Itaú Uruguay S.A. 232,579 (3,534) - - (16,103) 6,962 219,904 225,087 38,486 - September0 Oca S.A. 91,480 (939) - - (5,047) - 85,494 76,075 22,085 Oca Casa Financiera S.A. 35,477 (136) - - (4,460) - 30,881 30,036 7,296 Aco Ltda. 2,624 (16) - - (250) - 2,358 2,547 430 Itaú Uruguay Directo S.A. (3) ------15 (52) GRAND TOTAL 59,681,808 (43,308) 788 (7,568,071) 4,694,570 670,332 57,436,119 34,665,556 5,266,209 (1) Income receivable includes interest on capital receivable; (2) The investment and the equity in earnings reflect the different interest in preferred shares, profit sharing and dividends; (3) Company dissolved on 11/28/2008.
Number of shares owned by Equity share in Equity share in Stockholders' Net income (loss) C o m p a n i e s Capital ITAÚ UNIBANCO HOLDING voting capital capital equity for the period Common Preferred Quotas (%) (%) Domestic Itaú Unibanco S.A. 39,676,320 42,289,726 3,184,941 2,081,169,523 2,014,258,290 - 100.00 100.00 Banco Itaucard S.A. 15,872,334 18,571,844 33,796 3,592,433,657 1,277,933,118 - 1.48 2.00 Banco Itaú BBA S.A. 4,224,086 6,142,905 1,523,885 3,041,099 5,284,526 - 57.55 78.77 Itauseg Participações S.A. 2,000,000 4,115,879 273,751 1,582,676,636 - - 91.01 91.01 Itaú BBA Participações S.A. 645 ,901 1,400,210 330,074 170,647 341,294 - 100.00 100.00 Itaú Corretora de Valores S.A. 516,841 954,260 1,021 - 811,503 - - 3.58 Foreign Itaú Chile Holdings, Inc. 319,095 1,309,149 87,600 100 - - 100.00 100.00 Banco Itaú Uruguay S.A. 135,901 185,743 (5,835) 1,639,430,739 - - 100.00 100.00 Oca S.A. 12,452 76,415 6,789 1,502,176,740 - - 100.00 100.00 Oca Casa Financiera S.A. 16,070 29,562 298 646 - - 100.00 100.00 Aco Ltda. 11 2,158 11 - - 131 99.24 99.24
126 II - Composition of investments
09/30/2009 09/30/2008 Investment in affiliates 1,364,672 1,168,343 Domestic 438,079 271,704 Allianz Seguros S.A. (current corporate name of AGF Brasil Seguros S 151,325 137,775 Serasa S.A. 257,885 100,431 Other 28,869 33,498 Foreign 926,593 896,639 BPI 926,593 888,370 Other - 8,269 Other investments 1,091,652 347,039 Investments through tax incentives 161,030 108,321 Equity securities 8,099 6,894 Shares and quotas 145,526 101,002 Interest in Instituto de Resseguros do Brasil - IRB 227,170 11,130 Other 549,826 119,692 (Allowance for loan losses) (172,650) (99,594) Total 2,283,674 1,415,788
III - Equity in earnings of affiliates
01/01 to 01/01 to 09/30/2009 09/30/2008 Investment in affiliates - Domestic 69,678 33,930 Investment in affiliates - Abroad 58,204 44,442 Equity in earnings of subsidiaries, not arising from net income 19,189 (16,209) Total 147,071 62,163
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 127 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
b) Fixed and intangible assets
CHANGES 09/30/2009 09/30/2008 NET BALANCE DEPRECIATION/ ACCUMULATED MARKET MARKET AT ACQUISITIONS DISPOSALS AMORTIZATION OTHER (2) COST DEPRECIATION/ VALUE VALUE 12/31/2008 EXPENSES (5) AMORTIZATION
FIXED ASSETS 4,025,178 871,487 (66,148) (858,227) 100,124 10,908,876 (6,836,462) 4,072,414 2,436,990
REAL ESTATE IN USE (1) 2,443,025 137,792 (23,696) (283,255) 14,785 4,373,680 (2,085,029) 2,288,651 1,559,333 Land 827,642 3,604 (4,574) - (4,723) 821,949 - 821,949 639,740 Buildings 689,322 40,035 (606) (51,937) (16,492) 1,970,520 (1,310,198) 660,322 541,825 Improvements 926,061 94,153 (18,516) (231,318) 36,000 1,581,211 (774,831) 806,380 377,768 OTHER FIXED ASSETS 1,582,153 733,695 (42,452) (574,972) 85,339 6,535,196 (4,751,433) 1,783,763 877,657 Installations 167,233 70,019 (2,569) (18,019) (15,995) 474,613 (273,944) 200,669 111,094 Furniture and equipment 358,418 186,906 (9,096) (94,978) (55,107) 914,052 (527,909) 386,143 96,487 EDP systems 843,780 415,676 (14,892) (421,376) 156,106 4,562,792 (3,583,498) 979,294 562,373 - September0 Other (communication, security and transportation) 212,722 61,094 (15,895) (40,599) 335 583,739 (366,082) 217,657 107,703
INTANGIBLE ASSETS 4,132,966 340,861 (24,740) (781,916) (79,640) 4,879,702 (1,292,171) 3,587,531 2,816,284
RIGHTS FOR ACQUISITION OF PAYROLLS (3) 2,314,427 104,800 - (562,422) - 2,588,114 (731,309) 1,856,805 1,971,841 OTHER INTANGIBLE ASSETS 1,818,539 236,061 (24,740) (219,494) (79,640) 2,291,588 (560,862) 1,730,726 844,443 Association for the promotion and offer of financial products 1,140,329 107,465 (24,740) (87,264) - 1,145,824 (10,034) 1,135,790 420,097 and services (4) Expenditures on acquisitions of software 380,556 128,312 - (111,925) (5,643) 883,712 (492,412) 391,300 175,775 Right to management of investment funds 295,269 22 - (20,009) (73,656) 253,090 (51,464) 201,626 246,239 Other intangible assets 2,385 262 - (296) (341) 8,962 (6,952) 2,010 2,332
GRAND TOTAL 8,158,144 1,212,348 (90,888) (1,640,143) 20,484 15,788,578 (8,128,633) 7,659,945 5,253,274 (1) Includes amounts pledged in guarantee of voluntary deposits (Note 12b). (2) In Other, R$ 142,079 is included from the full consolidation of Redecard S.A. (Note 2a); (3) Represents the recording of amounts paid for acquisition of rights to provide services of payment of salaries, proceeds, retirement and pension benefits, and similar benefits. The balance basically comprises the agreements entered into with the State Governments of Rio de Janeiro, Goiás and Minas Gerais, and the Municipal Government of São Paulo. (4) Partnerships for the promotion and offer of financial products and services basically refers to the agreement entered into with the company LPS Brasil - Consultoria de Imóveis S.A.(LOPES) and the commercial agreement entered into with Loja Marisa S.A. in 2008; (5) Amortization expenses of the acquisition of rights to credit payrolls and partnerships are disclosed in the expenses on financial operations. 128 NOTE 16 - STOCKHOLDERS' EQUITY
a) Shares
The A/ESM held on April 24, 2009 resolved on the bônus of 10% in shares. The bonus shares started to be traded from August 28, 2009, date of approval of the related process by the Central Bank of Brazil. As a result, capital stock was increased by 415,539,656 shares.
Capital started to comprise 4.570.936.219 book-entry shares with no par value, of which 2,289,286,475 are common and 2,281,649,744 are preferred shares without voting rights, but with tag-along rights, in the event of the public offer of common shares, at a price equal to 80% of the amount paid per share with voting rights in the controlling stake, as well as a dividend at least equal to that of the common shares. Capital stock amounts to R$ 45,000,000 (R$ 17,000,000 at 09/30/2008), of which R$ 36,147,186 (R$ 12,712,421 at 09/30/2008) refers to stockholders domiciled in the country and R$ 8,852,814 (R$ 4,287,579 at 09/30/2008) refers to stockholders domiciled abroad.
The table below shows the change in shares of capital stock and treasury shares during the period. NUMBER Total Common Preferred Total Shares of capital stock at 12/31/2008 2,081,169,523 2,074,227,040 4,155,396,563 Share bonus – ASM/ESM of 04/24/2009 – Carried out on 08/28/2009 208,116,952 207,422,704 415,539,656
Shares of capital stock at 9/30/2009 2,289,286,475 2,281,649,744 4,570,936,219
Treasury shares at 12/31/2008 (1) - 58,763,000 58,763,000 (1,525,695) Purchases of shares 2,002 - 2,002 (21) Disposals – stock option plan - (16,093,569) (16,093,569) 412,204 Share bonus – A/ESM of 04/24/2009 – Carried out on 08/28/2009 200 4,505,995 4,506,195 -
Treasury shares at 09/30/2009 (1) 2,202 47,175,426 47,177,628 (1,113,512)
Outstanding shares at 09/30/2009 2,289,284,273 2,234,474,318 4,523,758,591
Outstanding shares at 09/30/2008 (2) 1,708,760,440 1,553,552,396 3,262,312,836 (1) Own shares, purchased based on authorization of the Board of Directors, to be held in Treasury for subsequent cancellation or replacement in the market. (2) For better comparability, outstanding shares in the period of 09/30/2008, were adjusted by the bonus carried out on 08/28/2009.
We detail below the costs of shares repurchased in the period, as well as the average cost of treasury shares and their market price at 09/30/2009:
Cost/Market value Common Preferred Minimum 9.65 - Weighted average 9.65 - Maximum 9.65 - Treasury shares Average cost 9.65 23.60 Market value 28.65 35.70
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 129 b) Dividends
Stockholders are entitled to a mandatory dividend of not less than 25% of annual net income, which is adjusted according to the rules set forth in Brazilian Corporate Law. Both types of shares participate equally, after common shares have received dividends equal to the minimum priority dividend of R$ 0.022 per share to be paid to preferred shares.
The calculation of the monthly advance of mandatory minimum dividend is based on the share position on the last day of the prior month, taking into consideration that the payment is made on the first business day of the subsequent month, in the amount of R$ 0.012 per share. The value per share will be maintained according to resolution adopted at the A/ESM held on April 24, 2009, so that total amounts monthly paid by the Company to stockholders will be increased by 10%, from October 1, 2009, date the bonus shares are included in the share position.
I – Calculation
Net income 5,471,623 Adjustments: (-) Legal reserve (273,581) Dividend calculation basis 5,198,042 Mandatory minimum dividends 1,299,510 Dividends paid/ provided for 2,303,167 44.3%
II - Payments/Provision of Interest on Capital and Dividends
Gross WTS Net Paid / Prepaid 1,215,838 (123,309) 1,092,529 Dividends - 8 monthly installments of R$ 0.012 per share paid from February to September 2009 393,776 - 393,776 Interest on capital - R$ 0.20 per share, paid on August 31, 2009 822,062 (123,309) 698,753
Provided for (*) 1,414,706 (204,068) 1,210,638 Dividends - 1 monthly installment of R$ 0.012 per share paid on October 1, 2009 54,255 - 54,255 Interest on capital - R$ 0.300 per share 1,360,451 (204,068) 1,156,383
Total from 01/01 to 09/30/2009 - R$ 0.5336 net per share 2,630,544 (327,377) 2,303,167 Total from 01/01 to 09/30/2008 - R$ 0.5562 net per share 1,964,699 (185,158) 1,779,541 (*) Recorded in Other Liabilities – Social and Statutory.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 130 c) Capital and revenue reserves
09/30/2009 09/30/2008 CAPITAL RESERVES 631,512 538,712 Premium on subscription of shares 283,512 537,608 Granted options recognized - Law No. 11,638 346,895 - Reserves from tax incentives and restatement of equity securities and other 1,105 1,104 REVENUE RESERVES 17,891,462 17,979,250 Legal 2,628,151 1,619,233 Statutory: 13,263,311 16,360,017 Dividends equalization (1) 4,607,446 5,812,707 Working capital increase (2) 3,447,900 4,537,295 Increase in capital of investees (3) 5,207,965 6,010,015 Unrealized profits (4) 2,000,000 - (1) Reserve for Dividends Equalization – its purpose is to guarantee funds for the payment of advances of dividends, including interest on capital, to maintain the flow of the stockholders' compensation. (2) Reserve for Working Capital Increase – its purpose is to guarantee funds for the company’s operations. (3) Reserve for Increase in Capital of Investees – its purpose is to guarantee the preferred subscription right in the capital increases of investees; (4) Refers to the excess portion of mandatory minimum dividend in relation to realized portion of net income for 2008, composed of in accordance with article 197 of Brazilian Corporate Law.
d) Reconciliation of Net Income and Stockholders’ Equity (Note 2b)
Net income Stockholders' equity 01/01 to 01/01 to 09/30/2009 09/30/2008 09/30/2009 09/30/2008 ITAÚ UNIBANCO HOLDING 5,471,623 5,510,368 62,656,290 33,932,804 Amortization of goodwill for the period (506,483) (22,482) (506,483) (22,482) Amortization of goodwill for prior periods 1,888,600 443,841 (13,285,848) (2,316,887) Unrealized income (loss) 80 80 (2,365) (2,472) ITAÚ UNIBANCO HOLDING CONSOLIDATED 6,853,820 5,931,807 48,861,594 31,590,963
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 131 e) Stock option plan
Before the merger, Itaú and Unibanco had stock-option plans. On April 24, 2009, Itaú’s plan was restructured, and a new program was launched for Itaú Unibanco, also called “Stock Option Plan”. From then on, a stock option will be granted in the prior programs.
I - Stock Option Plan – New ITAÚ UNIBANCO HOLDING Plan
This program aims at involving the officers in the medium and long-term corporate development process. The options are personal and not transferable, and entitle to the subscription of one authorized capital share or, at the discretion of the management, one treasury share which is acquired for replacement purposes. Such options may only be granted in years in which there are sufficient profits to distribute mandatory dividends to stockholders and at a quantity that does not exceed the limit of 0.5% of the total shares held by the stockholders at the base date of the year-end balance sheet. The ITAÚ UNIBANCO HOLDING’s Personnel Committee is responsible for defining the total number of shares to be granted, the eligible officers, the number granted to each officer, the validity of the option series, and the “vesting” and “blackout” periods for exercising the options. Options may be granted to executive officers and Board of Directors members (“Officers”) of ITAÚ UNIBANCO HOLDING and, in exceptional circumstances, to the management of controlled companies or outstanding employees of ITAÚ UNIBANCO HOLDING or the aforementioned companies, and upon the hiring of highly qualified individuals.
The exercise price of each series is fixed taking into consideration the average stock price at the São Paulo Stock Exchange over the period from one to three months prior to the issuance of options - subject to a positive or negative adjustment of up to 20% - at the option granting date and restated at the IGP-M until the month prior to the option exercise date. Alternatively, at the Committee’s discretion and by using the performance and leadership evaluation tools, for those executive officers who have potential for outstanding performance, the Committee may offer options which exercise price is to be paid through the performance of positive covenants, supported by the beneficiary’s obligation to invest, in ITAÚ UNIBANCO HOLDING’s shares, the amount of 20% of the net interest in profits and results received in relation to prior year, and keep the ownership of these shares unchanged and without any type of liens from the date shares were granted until its exercise.
This plan has not had any option granted so far.
II- Stock Option Plan – Itaú Plan
Itau’s original plan, also called “Stock Option Plan”, has characteristics similar to the current plan.
The exercise of stock options, pursuant to the Plan’s regulation, resulted in the sale of preferred shares held in treasury thus far. The accounting entries related to the plan are recorded upon the exercise of options, when the amount received from the option exercise price is recorded in Stockholders’ Equity.
The dilution percentage of the current stockholders' interest, in the event all granted options not yet exercised were exercised by the end of the vesting period, would be 0.27% for 2009, 0.24% for 2010, 0.23% for 2011, 0.25% for 2012 and 0.38% for 2013.
The options had the change below, up to September 30, 2009, taking into account the share bonus effects occurred in each period:
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 132
II.I - Total Granted Options
Exercise Granting Vesting Options Exercise price period until period until restated until Nº Date (R$1) Granted Exercised Cancelled Not exercised Closed series 102,046,284 99,645,479 2,400,805 - 8th 03/04/2002 12/31/2006 12/31/2009 11.19 14,689,125 13,547,050 697,125 444,950 8th 05/02/2005 12/31/2006 12/31/2009 11.19 7,727 - - 7,727 9th 03/10/2003 12/31/2007 12/31/2010 7.58 14,682,250 13,046,000 638,000 998,250 9th 05/02/2005 12/31/2007 12/31/2010 7.58 6,187 - - 6,187 10th 02/16/2004 12/31/2008 12/31/2011 11.46 13,879,111 10,208,744 784,575 2,885,792 11th 02/21/2005 12/31/2009 12/31/2012 16.12 11,044,550 3,013,450 390,775 7,640,325 11th 08/01/2005 12/31/2009 12/31/2012 16.12 27,500 - - 27,500 11th 08/06/2007 12/31/2009 12/31/2012 16.12 11,357 - - 11,357 12th 02/21/2006 12/31/2010 12/31/2013 23.99 11,889,625 1,437,491 247,500 10,204,634 12th 08/06/2007 12/31/2010 12/31/2013 23.99 15,867 - - 15,867 13th 02/14/2007 12/31/2011 12/31/2014 30.54 10,774,775 314,600 58,850 10,401,325 13th 08/06/2007 12/31/2011 12/31/2014 30.54 30,649 - - 30,649 14th 02/11/2008 12/31/2012 12/31/2015 35.21 11,637,285 - 18,700 11,618,585 14th 05/05/2008 12/31/2012 12/31/2015 35.21 20,625 - - 20,625 15th 03/03/2009 12/31/2013 12/31/2016 23.03 17,008,970 149,820 29,370 16,829,780 16th 08/10/2009 12/31/2010 12/31/2014 30.00 874,167 - - 874,167 17th 09/23/2009 9/23/2012 12/31/2014 31.64 29,551 - - 29,551 Total 208,675,605 141,362,634 5,265,700 62,047,271
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 133 II.II - Change in stock options
Number Price (*) Balance at 12/31/2008 58,888,291 25.34 Options . Granted 17,912,688 . Cancelled (29,370) . Exercised (14,724,338) Balance at 09/30/2009 62,047,271 25.11 (*) Weighted average exercise price.
II.III - Exercised options in the period (R$ 1)
Number of Exercise price Granting Market value (*) shares (*) 8th 1,660,725 11.36 24.70 9th 3,240,188 7.65 27.14 10th 6,758,814 11.57 27.90 11th 1,326,050 16.25 29.89 12th 1,286,241 24.11 31.90 13th 302,500 30.54 35.70 14th 149,820 23.17 31.63 Total 14,724,338 12.48 27.44 (*) Weighted average value.
III – Stock Option Plan – Unibanco Plan
This plan, derived from Unibanco, aimed at aligning the commitment of officers with long-term results and reward high performance, in addition to being an instrument to attract, retain and motivate talents, upon the granting of stock options (“Simple Options”). At the Extraordinary Stockholders’ Meeting held in March 2007, stockholders approved the change to the Stock Option Plan Rules – Performance, in order to establish the Program for Partners, according to which the executives selected to participate in such program can invest a percentage of their bonus in the acquisition of Units (“Own Shares”), which shall be held by them for a term from 3 to 5 years and are subject to market fluctuation. Depending on the percentage of the bonus invested for acquisition of Own Shares, a certain number of Unit options was received (“Bonus Options”). The exercise periods of these Bonus Options were from 3 to 5 years. The annual granting of Simple and Bonus Options are limited to 1% of authorized capital, and the total of options granted and not exercised was limited to 10% of this capital.
The fair value of these programs is calculated through the Binomial method for Simple Options and the Black Scholes method for the Plan for Partners.
In the calculation of the program costs the following is considered: number of active executives, number of granted options, number of active options, number of exercised options, expected future option exercise, period between the granting date and vesting period, and projected turnover.
The Extraordinary Stockholders’ meeting of ITAÚ UNIBANCO HOLDING held in April 2009 approved the assumption by ITAÚ UNIBANCO HOLDING the rights and obligations set forth in the agreements in force signed with the beneficiaries of the Stock Option Plans – Performance, including the responsibility for the grants carried out under this plan.
After this assumption, the beneficiaries of this plan started to be entitled to acquire shares issued by ITAÚ UNIBANCO HOLDING, by using the same exchange ratio used for the merger (purchase option of 1.7391 UBBR11 = purchase option of 1 ITUB4).
The options had the change below up to September 30, 2009, taking into account the share bonus effects occurred in each period:
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 134 III.I - Total Granted Options – Simple Options
Granting Options (ITUB4) (*) Exercise price per Vesting Exercise period each ITUB4 (R$) period until until Nº Date adjusted (IPCA) (*) Granted Exercised Cancelled Not exercised
Closed series 12,685,662 8,177,778 4,507,884 - 16th 09/02/2003 09/02/2008 02/25/2010 7.77 3,937,960 2,554,643 1,311,794 71,523 24th 07/19/2004 07/19/2009 07/18/2010 12.16 594,559 565,043 - 29,516 25th 08/04/2004 01/13/2009 05/05/2010 7.07 379,506 - - 379,506 27th 02/01/2005 02/01/2010 01/31/2011 15.31 5,338,354 2,687,495 1,028,869 1,621,990 29th 09/19/2005 09/19/2010 09/18/2011 19.42 75,900 - - 75,900 30th 07/04/2006 07/04/2011 07/03/2012 25.62 158,127 - - 158,127 33rd 08/30/2006 08/30/2011 08/29/2012 28.37 63,251 - - 63,251 34th 03/21/2007 03/21/2012 03/20/2013 32.32 227,703 - - 227,703 35th 03/22/2007 03/22/2012 03/21/2013 32.29 88,550 - - 88,550 36th 05/14/2008 05/14/2013 05/13/2014 40.17 75,901 - - 75,901 TOTAL 23,625,473 13,984,959 6,848,547 2,791,967 (*) Reflects the impact f the change of Unit by ITUB4 and share bonus.
III.II - Change in stock options – Simple Options
Number Price (*) Balance at 12/31/2008 9,154,693 9.41 Options Impact of exchange of UNIT for ITUB4 (3,890,702) Exercised (2,459,373) Cancelled (12,650) Balance at 09/30/2009 2,791,967 17.55 (*) Weighted average exercise price.
III.III – Exercised options in the period (R$1) – Simple Options
Number of Exercise price Granting shares (*) 11th 130,717 7.00 13th 158,590 6.65 16th 188,122 7.77 18th 25,300 9.09 19th 50,600 7.77 21st 2,580 11.10 22nd 168,668 10.99 23rd 42,166 11.09 24th 366,853 12.06 27th 1,325,777 15.15 TOTAL 2,459,373 12.57 (*) Weighted average value.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 135 III.IV – Bonus Options
Options (ITUB4) Granting Exercise period until Granted Exercised Cancelled Not exercised Date Closed series 8,160 8,160 - 09/03/2007 09/03/2012 767,755 43,640 39,134 684,981 02/29/2008 09/03/2012 66,948 - - 66,948 03/03/2008 03/03/2013 932,078 45,434 40,242 846,402 09/03/2008 09/03/2013 1,105,429 57,495 36,311 1,011,623 03/06/2009 03/06/2014 1,697,536 133,581 14,864 1,549,091 06/19/2009 03/06/2014 158,891 - - 158,891 TOTAL 4,736,797 280,150 138,711 4,317,936
III.V - Change in stock options – Bonus Options Number Balance at 12/31/2008 4,902,284 Options: Impact of exchange of UNIT for ITUB4 (2,083,547) Exercised (280,150) Granted 1,856,427 Cancelled (77,077) Balance at 09/30/2009 4,317,936
III.VI – Exercised options in the period (R$1) – Bonus Options Number of Granting Market value (*) shares 1st 43,640 28.22 4th 45,434 28.22 5th 57,495 28.22 6th 133,581 28.22 TOTAL 280,150 28.22 (*) Weighted average value.
IV - Effect of the option exercise - Itaú and Unibanco
Amount received for the sale of shares – exercised options 218,010 (-) Cost of treasury shares sold (412,204) (+) Write-off of cost recognized of exercised options 133,764 Effect on sale (*) (60,430) (*) Recorded in revenue reserves.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 136 NOTE 17 – RELATED PARTIES
a) Transactions between related parties are disclosed in compliance with CVM Resolution No. 560, of December 11, 2008, and CMN Resolution No. 3,750 of June 30, 2009. These transactions are carried out at amounts, terms and average rates in accordance with normal market practices during the period, as well as under reciprocal conditions.
Transactions between companies included in consolidation were eliminated from the consolidated financial statements and take into consideration the lack of risk.
The unconsolidated related parties are the following:
ITAÚSA, the main parent company of ITAÚ UNIBANCO HOLDING, its controlling companies and non- financial subsidiaries, especially Itautec S.A., Duratex S.A., Elekeiroz S.A. and Itaúsa Empreendimentos S.A.;
Fundação Itaubanco, FUNBEP – Fundo de Pensão Multipatrocinado, Caixa de Previdência dos Funcionários do BEG (PREBEG), Fundação Bemgeprev, Itaubank Sociedade de Previdência Privada, UBB – Prev Previdência Complementar, and Fundação Manoel Baptista da Silva de Seguridade Social, closed-end private pension entities, that administer supplementary retirement plans sponsored by ITAÚ UNIBANCO HOLDING and/or its subsidiaries; and
Fundação Itaú Social, Instituto Itaú Cultural, Instituto Unibanco, Instituto Assistencial Pedro Di Perna, Instituto Unibanco de Cinema and Associação Classe “A”, entities sponsored by ITAÚ UNIBANCO and subsidiaries to act in their respective areas of interest, as described in Notes 22e and 22j.
The transactions with these related parties are basically characterized by:
ITAÚ UNIBANCO HOLDING ITAÚ UNIBANCO HOLDING CONSOLIDATED ASSETS (LIABILITIES) REVENUE/(EXPENSES) ASSETS (LIABILITIES) REVENUE/(EXPENSES) 01/01 to 01/01 to 01/01 to 01/01 to 09/30/2009 09/30/2008 09/30/2009 09/30/2008 09/30/2009 09/30/2008 09/30/2009 09/30/2008 Interbank investments 6,731,450 475,797 332,318 23,527 - - - - Itaú Unibanco S.A. 6,731,450 475,797 332,318 23,527 - - - - Securities and derivative financial instruments (881) (1,515) 575 10,155 639 567 - -
Itaú Unibanco S.A. (881) (1,515) 575 10,155 - - - - Duratex S.A. - - - - - 567 - - Itautec S.A. - - - - 639 - - - Deposits - - - - (122,900) (61,526) (5,015) (325) Duratex S.A. - - - - (22,084) (15,720) - (184) Itautec S.A. - - - - - (579) - (141) Elekeiroz S.A. - - - - (11,785) (653) (1,561) - ITH Zux Cayman Company Ltd. - - - - (41,422) (44,574) - - Itaúsa Empreendimentos S.A. - - - - (47,609) - (3,454) - Repurchase agreements (880,795) (334,891) (51,227) (23,464) (64,719) (10,553) (13,132) (4,227) Itaú Unibanco S.A. (880,795) (334,891) (51,227) (23,464) - - - - Intrag-Part Administração e Participações Ltda. - - - - (23,977) - (1,734) (1,416) Duratex S.A. - - - - (30,586) - (1,951) (293) Itaú Gestão de Ativos S.A. - - - - - (5,004) - (420) Elekeiroz S.A. - - - - (9,015) (5,549) (7,554) (2,062) Itautec S.A. ------(1,893) - Seg-Part S.A. - - - - (1,141) - - (36) Amounts receivable from/payable to related parties 1,155 - (3,573) - (78,580) - (108,987) - Itaú Corretora de Valores S. A. (415) - (3,573) - - - - - Itaúsa Investimentos S.A. - - - - (78,580) - (108,987) - Itaú Unibanco S.A. 1,570 ------Banking service fees ------8,514 5,480 Fundação Itaubanco ------6,725 4,189 FUNBEP - Fundo de Pensão Multipatrocinado ------1,789 1,291 Rent expenses ------(23,237) (21,673) FUNBEP - Fundo de Pensão Multipatrocinado ------(4,901) (4,515) Fundação Itaubanco ------(18,336) (17,158) Donation expenses ------(40,417) (31,040) Instituto Itaú Cultural ------(30,360) (31,040) Instituto Unibanco de Cinema ------(9,632) - Associação Clube "A" ------(425) - Data processing expenses ------(193,335) (168,872) Itautec S.A. ------(193,335) (168,872)
In addition to the aforementioned operations, ITAÚ UNIBANCO HOLDING and non-consolidated parties, as an integral part of the Agreement for Apportionment of Common Costs of the Itaú Unibanco group, paid, from January 1 to September 30, 2009, the amount of R$ 7,197 (R$ 5,798 from January 1 to September 30, 2008) in view of the use of the common structure.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 137 b) Compensation of the Management Key Personnel
The fees attributed in the period to ITAÚ UNIBANCO HOLDING officers are as follows:
09/30/2009 09/30/2008 Compensation 215,549 175,158 Board of directors 10,700 5,675 Officers 204,849 169,483 Profit sharing 181,869 159,384 Board of directors 3,096 1,705 Officers 178,773 157,679 Contributions to pension plans 21,048 14,705 Board of directors 945 799 Officers 20,103 13,906 Stock based compensation - Officers 85,140 - Total 503,606 349,247
Information related to the granting of stock option plan, benefits to employees and post-employment are detailed in Notes 16e, 19a and 19b, respectively.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 138 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
NOTE 18 - MARKET VALUE
The financial statements are prepared in accordance with accounting principles which assume the normal continuity of the operations of ITAÚ UNIBANCO HOLDING and its subsidiaries.
The book value of each financial instrument, whether included or not in the balance sheet, when compared to the value that might be obtained in an active market, or in the absence of such market, using the net present value of future cash flows adjusted based on the current market interest, is approximately equal to the market value, or does not have a market quotation available, except for the instruments in the table below:
BOOK VALUE MARKET Unrealized income (loss) (3) Results Stockholders' equity 09/30/2009 09/30/2008 09/30/2009 09/30/2008 09/30/2009 09/30/2008 09/30/2009 09/30/2008 Interbank deposits 16,596,680 11,404,198 16,663,406 11,404,532 66,726 334 66,726 334 Securities and derivative financial instruments 122,576,312 81,606,829 122,979,678 81,779,979 1,133,453 85,119 403,366 173,150 Adjustment of available-for-sale securities 713,483 (108,200) - - Adjustment to held-to-maturity securities 419,970 193,319 403,366 173,150 Loan, lease and other credit operations 213,031,059 142,225,850 213,428,817 141,685,376 397,758 (540,474) 397,758 (540,474) Investments BM&FBovespa 74,572 74,529 783,872 509,175 709,300 434,646 709,300 434,646 BPI 926,593 888,370 1,065,638 988,061 139,045 99,691 139,045 99,691 - September0 Parent company 139,045 58,777 139,045 58,777 Minority stockholders (1) - 40,914 - 40,914 Redecard S.A. 1,388,745 192,153 9,169,225 3,886,288 7,780,480 3,694,135 7,780,480 3,694,135 Serasa S.A. 257,885 100,431 650,798 324,917 392,913 224,486 392,913 224,486 Parent company 170,604 100,431 563,517 324,917 392,913 224,486 392,913 224,486 Minority stockholders (1) 87,281 - 87,281 - - - - - Visa Inc. - 12 - 87,558 - 87,546 - 87,546 Fundings and borrowings (2) 151,885,256 87,575,215 151,974,846 87,626,809 (89,590) (51,594) (89,590) (51,594) Securitization of foreign payment orders - 1,453,317 - 1,447,895 - 5,422 - 5,422 Subordinated debt (Note 10g) 23,471,568 13,260,084 23,584,436 13,307,980 (112,868) (47,896) (112,868) (47,896) Treasury shares 1,113,512 1,509,206 1,684,226 1,839,659 - - 570,714 330,453 Total unrealized 10,417,217 3,991,415 10,257,844 4,409,899 (1) The investment held by minority stockholders does not affect the result of ITAÚ UNIBANCO HOLDING. (2) Funding is represented by interbank and time deposits and funds from acceptance and issuance of securities. (3) It does not consider the corresponding tax effects. 139
To obtain the market values for these financial instruments, the following criteria were adopted:
Interbank investments were determined based on their nominal amounts, monetarily restated to maturity dates and discounted to present value using future market interest rates and swap market rates for fixed-rate securities and using market interest rates for fixed-rate securities published in the Gazeta Mercantil newspaper on October 1, 2009 for floating-rate securities.
Securities and derivative financial instruments, according to the rules established by Circulars Nos. 3,068 and 3,082 of November 8, 2001 and January 30, 2002, respectively, issued by the Central Bank of Brazil (BACEN), are recorded at their market value, except for those classified as Held to Maturity. Government securities allocated in this category have their market value calculated based on the rates obtained in the market, and validated through the comparison with information provided by the National Association of Financial Market Institutions (ANDIMA). Private securities included in this category have their market value calculated using a criterion similar to the one adopted for Investments in Interbank Deposits, as described above.
Loans with maturity over 90 days, when available, were calculated based on their net present value of future cash flows discounted at market interest rates effective on the balance sheet date, taking into account the effects of hedges as well (swap contracts).
Investments - in BPI, Redecard S.A., BM&F Bovespa S.A., and Visa Inc. are determined based on stock market quotations, and in Serasa S.A. are determined based on the last transaction prices.
Time and interbank deposits and funds from acceptance and issuance of securities, when available, were calculated based on their present value determined by future cash flows discounted at futures market interest rates and swap market rates for fixed-rate securities, and for floating-rate securities, market interest rates for fixed-rate securities published in the Gazeta Mercantil newspaper on October 1, 2009. The effects of hedges (swap contracts) are also taken into account.
Securitization of foreign payment orders, based on the net present value of the future cash flows estimated as from the interest curves of the indexation market places, net of the interest rates practiced in the market on the balance sheet date, considering the credit risk of the issuer, calculated based on the market price of other securities issued by the same.
Subordinated debt, based on the net present value of future fixed or floating cash flows in foreign currency, net of the interest rates practiced in the market on the balance sheet date and considering the credit risk of the issuer. The floating cash flows are estimated as from the interest curves of the indexation market places.
Treasury shares are valued according to the average quotation available on the last trading day of the month or, if this is not available, according to the most recent quotation on prior trading days, published in the daily bulletin of each Stock Exchange.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 140 NOTE 19 - BENEFITS TO EMPLOYEES
Under the terms of CVM Resolution No. 371, dated December 13, 2000, we present the policies adopted by ITAÚ UNIBANCO HOLDING and its subsidiaries regarding benefits to employees, as well as the accounting procedures adopted:
a) Supplementary retirement benefits:
ITAÚ UNIBANCO HOLDING and its subsidiary companies sponsor the following supplementary retirement plans:
Entity Benefit Plan Supplementary retirement plan - PAC (1) Franprev benefit plan - PBF (1) Fundação Itaubanco 002 Benefit Plan – PB002 (1) Itaulam Basic Plan – PBI (1) Itaulam Supplementary Plan - PSI (2) Fundação Bemgeprev Supplementary Retirement Plan – Flexible Premium Annuity (ACMV) Funbep I Benefit Plan (1) Funbep Fundo de Pensão Multipatrocinado Funbep II Benefit Plan (2) Caixa de Previdência dos Funcionários do Banco Beg - Prebeg Prebeg Benefit Plan (1) Citiprevi - Entidade Fechada de Previdência Complementar Credicard Retirement Plan (1) (Orbitall/Credicard Itaú/Redecard) Credicard Supplementary Retirement Plan (2) Itaubank Sociedade de Previdência Privada Itaubank Retirement Plan (3) Unibanco pension plan (3) UBB-PREV - Previdência Complementar Basic Plan (1) IJMS plan (1) Fundação Banorte Manoel Baptista da Silva de Seguridade Benefit Plan I (1) Social Benefit Plan II (1) (1) Defined benefit plan. (2) Variable contribution plan. (3) Defined contribution plan.
The basic purpose of the defined benefit and variable contribution plans is to grant a benefit that, as a life annuity benefit (in case of FUNBEP, PREBEG, PB002 and Credicard, UBB Prev and Banorte, also as survivorship annuities), will supplement the pension paid by social security. In case of the defined contribution plan, the benefit is calculated based on the contributions made and its payment is made for an
established period, which does not require actuarial calculation.
All of these plans are closed to new participants. As regards the new employees hired after the closing, they have the option to participate in a defined contribution plan (PGBL) managed by Itaú Vida e Previdência S.A.
During the period, the contributions made totaled R$ 35,247 (R$ 29,006 from January 1 to September 30, 2008). The contribution rate increases based on the beneficiary’s age.
b) Post-employment benefits
ITAÚ UNIBANCO HOLDING subsidiaries do not offer other post-employment benefits, except in those cases arising from maintenance obligations according to the acquisition agreements signed by ITAÚ, under the terms and conditions established, in which health plans are totally or partially sponsored for retired workers and beneficiaries. During the period, the contributions made totaled R$ 4,323 (R$ 4,508 from January 1 to September 30, 2008). The contribution rate increases based on the beneficiary’s age.
c) Net amount of assets and actuarial liabilities of the benefit plan: The net assets and actuarial liabilities, which consider the actuarial obligations, calculated in conformity with the criteria established by CVM Resolution No. 371, dated December 13, 2000, are summarized below:
09/30/2009 09/30/2008 Net assets of the plans 13,829,203 13,101,809 Actuarial liabilities (12,011,119) (9,982,207) Surplus (*) 1,818,084 3,119,602 (*) According to paragraph 49g of the attachment to CVM Resolution No. 371 of December 13, 2000, the net asset was not
In addition to the reserves recorded by the plans, the sponsors record provisions in the amount of R$ 121,674 (R$ 27,114 at September 30, 2008) (Note 13c) to cover possible actuarial liabilities.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 141 d) Changes in net assets, actuarial liabilities, and surplus
01/01 to 09/30/2009 01/01 to 09/30/2008
Actuarial Actuarial Assets liabilities Surplus Assets liabilities Surplus
Present value – beginning of the period 12,775,978 (11,223,791) 1,552,187 12,583,353 (9,440,841) 3,142,512 Adjustments in the period (1) - (127,661) (127,661) - - - Expected return on assets/ Cost of current service + interest 1,157,681 (1,063,789) 93,892 1,152,288 (873,330) 278,958 Benefits paid (404,122) 404,122 - (331,964) 331,964 - Contributions of sponsors/participants 79,690 - 79,690 43,463 - 43,463 Gains/(losses) in the period (2) 219,976 - 219,976 (345,331) - (345,331) Present value – end of the period 13,829,203 (12,011,119) 1,818,084 13,101,809 (9,982,207) 3,119,602 (1) Effect corresponding to the reclassification of the option of former employees. (2) Gains/(losses) in assets correspond to the actual earnings obtained above (below) the expected return rate of assets.
e) Main assumptions used in actuarial evaluation
Discount rate 10.24% p.a. Expected return rate on assets 12.32 % p.a. Mortality table (1) AT-2000 Turnover (2) Itaú Exp. 2003/2004 Future salary growth 7.12 % p.a. Growth of the pension fund and social security benefits 4.00 % p.a. Inflation 4.00 % p.a. Actuarial method Projected Unit Credit (3) (1) The mortality tables adopted correspond to those disclosed by SOA – Society of Actuaries, the North-American Entity which corresponds to IBA – Brazilian Institute of Actuarial Science, which reflects a 10% increase in the probabilities of survival as compared to the respective basic tables. (2) The turnover assumption is based on the effective experience of ITAÚ UNIBANCO HOLDING, resulting in an average of 1.2% p.a. based on 2003/2004 experience. (3) Using the Projected Unit Credit, the mathematical reserve is determined by the current projected benefit amount multiplied by the ratio between the length of service in the company at the assessment date and the length of service that will be reached at the date when the benefit is granted. The cost is determined taking into account the current projected benefit amount distributed over the years that each participant is employed.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 142 Itaú Unibanco+ROGLQJ S.A. &RPSOHWH)LQDQFLDO6WDWHPHQWV–
NOTE 20 – INFORMATION ON FOREIGN SUBSIDIARIES
Banco Itaú Argentina Itaú Europa Consolidated Consolidated Cayman Consolidated Uruguay Other foreign Foreign branches (1) Consolidated Chile (5) Paraguay (7) Foreign consolidated (9) S.A. (2) (3) (4) (6) companies (8) 09/30/2009 09/30/2008 09/30/2009 09/30/2008 09/30/2009 09/30/2008 09/30/2009 09/30/2008 09/30/2009 09/30/2008 09/30/2009 09/30/2008 09/30/2009 09/30/2009 09/30/2008 09/30/2009 09/30/2008 Assets Current and long-term receivables Cash and cash equivalents 1,022,460 532,546 89,255 100,185 2,051,800 316,200 2,312,314 90,808 358,275 383,219 456,094 829,273 128,942 197,057 119,869 4,873,173 1,897,091 Interbank investments 12,651,128 9,334,233 158,305 198,198 2,208,346 3,759,470 3,526,683 2,569,697 3,864 311,370 376,575 296,474 224,696 106,115 188,616 14,689,628 13,133,156 Securities 18,492,493 11,117,288 216,108 59,088 1,611,047 2,079,676 3,975,853 3,289,283 1,796,581 1,294,609 447,348 106,934 285,412 182,831 35,367 24,487,254 16,611,655 Loan, lease and other credit operations 8,937,956 9,841,173 1,088,284 1,499,088 5,288,203 5,601,805 261,987 259,977 6,714,789 7,324,585 1,056,557 1,296,458 766,649 - 390,390 23,995,861 25,688,045 Foreign exchange portfolio 3,371,710 3,886,028 26,011 146,807 26,981,702 85,947 550,709 237,669 116,715 228,051 23,831 43,950 18,848 388,693 522 30,242,912 4,477,641 Other assets 1,325,285 766,360 361,768 360,252 321,813 263,693 793,664 761,259 231,043 264,018 586,711 73,251 313,424 95,916 44,602 3,908,428 2,526,139 Permanent assets Investments - - 5,069 13,137 477,908 458,307 39,107 42,316 955 764 326 341 508 493,463 471,343 935,940 902,986 BPI - - - - 462,992 453,069 ------444,835 435,301 907,827 888,370 Other investments - - 5,069 13,137 14,916 5,238 39,107 42,316 955 764 326 341 508 48,628 36,042 28,113 14,616 Fixed and intangible assets 28,002 21,111 62,922 49,733 214,035 252,987 171 - 149,356 136,630 22,958 26,291 15,011 5,136 4,236 497,653 490,991 Total 45,829,034 35,498,739 2,007,722 2,426,488 39,154,854 12,818,085 11,460,488 7,251,009 9,371,578 9,943,246 2,970,400 2,672,972 1,753,490 1,469,211 1,254,945 103,630,849 65,727,704
Liabilities Current and long-term liabilities Deposits 17,256,615 7,740,023 1,522,997 1,830,126 6,979,171 7,004,541 1,860,590 2,707,680 6,134,721 6,174,974 2,317,106 1,987,475 1,428,502 38 63,003 30,510,790 23,290,650 Demand deposits 3,254,429 1,499,039 401,045 455,539 2,664,051 1,426,793 1,271,611 561,344 1,088,116 976,066 1,201,207 1,062,144 426,979 - 8,010,460 5,014,768 Savings deposits - - 364,484 354,657 ------713,030 586,928 673,317 - - 1,750,830 941,585 Interbank deposits 1,226,482 2,125 5,323 28,703 1,251,907 1,722,868 338,395 1,185,710 12 17 38,428 50,516 87,591 - - 582,199 1,003,674 Time deposits 12,775,704 6,238,859 752,145 991,227 3,063,213 3,854,880 250,584 960,626 5,046,593 5,198,891 364,441 287,887 240,615 38 63,003 20,167,301 16,330,623 Deposits received under securities repurchase agreements 2,273,013 722,641 94,068 28,339 - 170,523 840,239 693,151 257,047 262,804 - - - - - 2,966,808 1,706,935
- September0 Funds from acceptance and issuance of securities 1,928,813 1,552,077 - - 2,026,701 2,473,601 2,346,329 656,911 365,759 488,161 - - - - - 6,554,266 5,1 67,854 Borrowing 8,826,996 10,062,390 12,011 103,428 916,341 1,223,725 23,821 - 748,898 1,083,607 6,081 12,753 4,852 57,311 7,532 10,402,692 12,483,976 Derivative financial instruments 958,617 1,147,257 663 6,450 251,460 123,436 788,055 672,718 112,065 202,801 - - - - - 1,014,383 1,108,022 Foreign exchange portfolio 3,380,787 3,890,424 26,019 145,660 27,051,215 85,656 552,299 237,985 124,900 281,303 25,991 43,811 17,978 396,855 - 29,275,189 4,534,028 Other liabilities 2,290,505 2,930,728 178,651 101,701 182,208 552,715 982,417 1,055,468 318,552 168,546 327,343 346,039 93,885 89,974 25,020 5,351,343 4,725,690 Deferred income 2,023 3,793 - - 13,136 11,393 386 555 380 426 - - 82 - 21 16,008 16,153 Minority interests in subsidiaries - - - - 95 156 - - 108 98 - 18 - 10 6 280 31,302 Stockholders' equity Capital and reserves 8,136,814 7,125,541 171,826 195,897 1,727,474 1,064,648 4,042,269 1,284,579 1,221,548 1,179,973 292,616 240,409 149,615 886,963 1,162,873 16,546,361 12,165,075 Net income 774,851 323,865 1,487 14,887 7,053 107,691 24,083 (58,038) 87,600 100,553 1,263 42,467 58,576 38,060 (3,510) 992,729 498,019 Total 45,829,034 35,498,739 2,007,722 2,426,488 39,154,854 12,818,085 11,460,488 7,251,009 9,371,578 9,943,246 2,970,400 2,672,972 1,753,490 1,469,211 1,254,945 103,630,849 65,727,704 Statement of Income Income from financial operations 1,911,848 972,061 205,914 217,237 550,892 435,025 192,564 90,971 460,498 690,789 63,223 120,875 117,684 (8,571) 18,273 3,300,367 2,412,157 Expenses on financial operations (945,020) (616,354) (61,094) (94,779) (473,214) (300,856) (177,224) (106,769) (139,970) (385,459) (9,524) (12,639) (25,305) (1,468) (1,162) (1,764,396) (1,384,617) Result of allowance for loan losses (151,891) (9,697) (21,413) (2,528) (6,388) (24,016) - 5 (117,670) (70,318) (2,190) (2,755) (10,634) - 6 (310,186) (109,304) Gross income from financial operations 814,937 346,010 123,407 119,930 71,290 110,153 15,340 (15,793) 202,858 235,012 51,509 105,481 81,745 (10,039) 17,117 1,225,785 918,236 Other operating revenues/expenses (10,445) (18,065) (112,670) (103,904) (42,172) (32,818) 20,598 (26,981) (94,523) (127,346) (51,039) (60,271) (17,825) 61,854 (1,269) (120,724) (382,751) Operating income 804,492 327,945 10,737 16,026 29,118 77,335 35,938 (42,774) 108,335 107,666 470 45,210 63,920 51,815 15,848 1,105,061 535,485 Non-operating income 3,136 (1,059) 820 3,035 12 - (413) - (1,019) 5,050 7,741 3,371 1,018 (197) 18 10,627 10,268 Income before taxes on income and profit sharing 807,628 326,886 11,557 19,061 29,130 77,335 35,525 (42,774) 107,316 112,716 8,211 48,581 64,938 51,618 15,866 1,115,688 545,753 Income tax (32,777) (3,021) (10,070) (1,535) (16,530) 36,429 (357) (1,374) (19,706) (12,146) (6,948) (6,114) (6,362) (7,038) (10,016) (99,787) 2,223 Statutory participation in income - - - (2,639) (5,548) (6,068) (11,085) (13,890) - - - - - (6,520) (9,359) (23,155) (31,955) Minority interests in subsidiaries - - - - 1 (5) - - (10) (17) - - - - (1) (17) (18,002) Net income (loss) 774,851 323,865 1,487 14,887 7,053 107,691 24,083 (58,038) 87,600 100,553 1,263 42,467 58,576 38,060 (3,510) 992,729 498,019 (1) Itaú Unibanco S.A. - Grand Cayman, New York, Tokyo and Nassau Branches, Banco Itaú-BBA S.A. - Nassau Branch, Banco Itaú-BBA S.A. - Uruguay Branch, Itaú Unibanco Holding S.A. - Grand Cayman Branch and Unibanco Grand Cayman Branch; (2) New company's name of Banco Itaú Buen Ayre S.A., approved by the Banco Central de La República Argentina on 02/0242008; (3) BIEL Holdings AG, IPI - Itaúsa Portugal Investimentos, SGPS Lda. (51%), Itaú Europa Luxembourg Advisory Holding Company S.A.,Itaúsa Europa - Investimentos, SGPS, Lda., Itaú Europa, SGPS, Lda., Itaúsa Portugal - SGPS, S.A.,Banco Itaú Europa, S.A., BIE - Bank & Trust, Ltd., Banco Itaú Europa Luxembourg S.A., Banco Itaú Europa Fund Management Company, S.A. (dissolved on 07/31/2009), BIEL Fund Management Company S.A., BIE Cayman, Ltd., Banco Itaú Europa International, Bie Bank & Trust Bahamas Ltd., Itaú Europa Securities Inc., only on 09/30/2009, Itaú Madeira Investimentos, SGPS, Ltda, BIE Directors, Ltd, BIE Nominees, Lda, Brazcomp 1 Limited and Fin Trade, Kennedy Director International Services S.A., Federal Director International Services, S.A., Bay State Corporation Limited Cape Ann Corporation Limited; (4) BFB Overseas N.V., BFB Overseas Cayman, Ltd., Itau Bank Ltd., ITB Holding Ltd., Jasper International Investiment LLC, only on 30/09/2009 Unibanco Cayman Bank Ltd., Unicorp Bank & Trust Ltd., Unibanco Securities, Inc, UBB Holding Company, Inc., Uni-Investments Inter. Corp., Unipart Partic. Internac. Ltd.e Rosefield Finance Ltd., Unibanco - União de Bancos Brasileiros (Luxenbourg) S.A. (merged in 31/07/2009 ); (5) Itaú Chile Holdings, Inc., BICSA Holdings LTD., Banco Itaú Chile S.A., Itaú Chile Inversiones, Servicios Y Administración S.A., Itaú Chile Corredor de Bolsa Ltda., Itaú Chile Corredora de Seguros Ltda., Itaú Chile Administradora General de Fondos S.A., Itaú Chile Securitizadora S.A., Recuperadora de Créditos Ltda and only on 09/30/2009 Itaú Chile Compañia de Seguros de Vida S.A.; (6) ACO Ltda., Banco Itaú Uruguay S.A., OCA Casa Financiera S.A., OCA S.A, Itaú Uruguay Directo S.A., Unión Capital AFAP S.A; (7) Interbanco S.A; (8) Afinco Americas Madeira, SGPS, Soc. Unipessoal Ltda., Itaú Asset Management S.A., Sociedad Gerente de Fondos Comunes de Inversión, Zux Cayman Company Ltd., Zux SGPS, Lda,, Agate SARL, Topaz Holding Ltd., Itaú USA Inc, Itaú International Investment LLC, ITrust Servicios Financieros S.A., Albarus S.A., Banco Del Paraná S.A., Amethyst Holding Ltd., Garnet Corporation, Itaú Securities Holding (new company's name of Zircon Corporation), Spinel Corporation, Tanzanite Corporation, Itaú Sociedad de Bolsa S.A., Peroba Ltd. (dissolved on 07/31/2009), Mundostar S.A., Karen International Ltd., Nevada Woods S.A., Itaú Asia Securities Ltd., Líbero Trading International Ltd., IPI - Itaúsa Portugal Investimentos, SGPS Lda. (49%), Itaú USA Securities, Inc., Itaú Middle East Securities Limited and only on 09/30/2009 Itau UK Securities Ltd, Unipart B2B Investments, S.L., Tarjetas Unisoluciones S. A. de Capital Variable, Proserv - Promociones Y Servicios S.A. de C. V. (9) Information on foreign consolidated presents balances net of eliminations from consolidation. 143 NOTE 21 – RISK MANAGEMENT
Risk management is considered an essential tool for optimizing the use of capital and selecting the best business opportunities, in order to obtain the best risk and return ratio for its stockholders, being performed by ITAÚ UNIBANCO HOLDING through its Management Committees. The risk appetite management is centralized in one of these committees, being responsible for releasing general policies and the consolidated risk assessment, whereas the operational management is carried out by committees specific to each type of risk that establish parameters to be followed by the business areas, which in turn are monitored independently by the control area.
This process is continuous, permanently reviewed and supports the Group’s strategies.
Further details on the risk control process can be found on the website (www.itau-unibanco.com/ir), in the following route Corporate Governance/Risk Management.
I – Market Risk
This is the risk associated with the probability that a variation in the value of assets and liabilities, caused by uncertainties about changes in prices and market rates, incurs losses for the company.
The risk control process starts with the setting of limits, approved by the Financial Risk Management Committee, responsible for the market risk management, based on the risk appetite and financial capacity of each main unit. The market risk is controlled by the centralized risk control area, which carries out daily measurement, assessment and report activities by way of control units set in the Legal Entities.
Additionally, it carries out the consolidated monitoring, assessment and report of market risk information, aiming at providing input for the Management Committee’s follow-up and compliance with the Brazilian regulatory body.
The market risk control and management process is submitted to periodic reviews aimed at keeping it aligned with the best market practices and adhering to the continuous improvement processes at ITAÚ UNIBANCO HOLDING.
Value at Risk (VaR)
The risk assessment process quantifies the exposure to and the appetite for risk using the risk limits based on statistical criteria (VaR Statistical: level of confidence at 99% - is a statistical measure that estimates the expected potential maximum economic loss under regular market conditions, taking into consideration the time period and confidence level), Stress simulations (Var Stress – is a measure that estimates the loss under extreme market conditions based on stress scenarios) and allocated economic capital.
The transactions of commercial bank activities and strategic positions are managed using assessments of economic risk and simulations of accounting exposures Directional trading operations (operations aimed at finding the best market options, in order to take advantage of imperfections in the definition of prices and rates, in relation to the company's expectations), performed by proprietary desks, are mainly controlled by VaR Stress measures and loss prevention limits.
The limits and exposure to market risks are relatively low as compared to the company’s stockholders’ equity, according to the diversified management of risks. In September 2009 the Total VaR Global of ITAÚ UNIBANCO HOLDING was R$ 158 million (R$ 193 million in June 2009).
Susceptibility of portfolio in relation to market risk factors
In compliance with CVM Instruction No. 475 of December 17, 2008, Itaú Unibanco Holding carried out a sensitivity analysis by market risk factors considered relevant to which the group was exposed at September 30, 2009 (Note 7j). Each market risk factor was subject to a sensitivity level, with shock applications in approximately 25% (scenario I) and approximately 50% (scenario II), and the biggest losses arising, by risk factor, in each scenario, were stated in result, net of tax effects, by providing a vision of the ITAÚ UNIBANCO HOLDING exposure in derivatives under exceptional scenarios.
In accordance with the operations classification criteria set forth in BACEN Resolution No. 3,464/07 and Circular No. 3,354/07 and in the New Capital Accord – Basel II, the analysis was fully applied to the trading and banking portfolios, which exposures will have significant impacts on the company’s current result.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 144 The outcome of the sensitivity analysis, with correlation effects among the risk factors in the trading portfolio and net of tax effects, points out to a mark-to-market sensitivity of R$ 486 million and R$ 1.046 million for those scenarios with variations of 25% and 50%, respectively. In the consolidated portfolio (trading + banking), sensitivity is R$ 1.238 million and R$ 2.497 million for those scenarios with variations of 25% and 50%, respectively.
The sensitivity analyses shown above do not predict the dynamics of the operation of the risk and treasury areas, because once loss related to positions is found, risk mitigating measures are quickly taken, minimizing the possibility of significant losses.
The method, parameters and assumptions are in the Management Discussion and Analysis Report (www.itau-unibanco.com/ir).
ITAÚ UNIBANCO HOLDING’s Market Risk Management Policy, based on BACEN’s guidelines and the Basel Committee’s concepts, is a set of principles that drive its strategy towards control and management of market risk of all Business Units and Legal Entities of the Group. It is in the website (www.itau- unibanco.com/ir) in the route: Corporate Governance/Regulations and Policies/Market Risk Management Policy.
II – Credit Risk
This is the risk of a debtor or borrower failing to fulfill the financial obligations of any agreement with the organization, or alternatively, failing to fulfill any agreed-upon provisions.
ITAÚ UNIBANCO HOLDING’s management is performed with the objective of maximizing the risk and return ratio of its assets, maintaining the credit portfolio quality at levels appropriate to the market segments in which it is operating. The strategy is aimed at creating value to its stockholders at levels higher than the minimum return value adjusted to risk.
ITAÚ UNIBANCO HOLDING establishes its credit policy based on internal factors, such as the client rating criteria and the portfolio development analysis, the registered default levels, the incurred return rates, the portfolio quality and the allocated economic capital; and external factors, related to the economic environment in Brazil and abroad, including market share, interest rates, market default indicators, inflation, consumption increase/decrease.
ITAÚ UNIBANCO HOLDING’s centralized process for making decisions and establishing a credit policy guarantees the synchrony of credit actions and optimization of business opportunities. In retail, decisions are made based on scoring models that are continuously followed up by evaluating the result of their application in groups to which credits were granted. In wholesale, the several committees are subordinated to the Management Committee, responsible for the credit risk management through a structure of approval levels that ensures the detailed observation of transaction risk, as well as the necessary timing and flexibility of its approval.
To protect the institution against losses arising from loan operations, ITAÚ UNIBANCO HOLDING determines a provision level commensurate with the risk incurred in each operation through analyses that consider the aspects which determine the client’s credit risk. For each operation, the assessment and rating of the client/economic group, the operation rating, and status of the operation default are taken into account.
Additionally, ITAÚ UNIBANCO HOLDING recognizes a provision to cover possible additional losses that may arise due to any reversal of the economic cycle. This provision is usually recognized based on the company’s historic default cycle. In view of the worsened economic scenario in the 4th quarter of 2008, the default cycle used for calculating the additional provision was widened to include the expected effects of the new scenario.
The set of exposures, probabilities of default and the expected recovery of transactions are included in a capital model that calculates for extreme situations the Group’s capital requirement at a safety level of 99.99%.
III – Operational Risk
It is defined as the possibility of occurring losses resulting from flaw, deficiency or inadequacy of internal processes, people and systems, or external events.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 145 The increasing sophistication of banking business environment and the development of technology make the risk profiles of organizations more complex, clearly outlining this operational risk class, which management is not a new practice, but requires now a specific structure, different from those traditionally adopted for credit and market risks.
In line with the principles of CMN Resolution No. 3,380, of June 29, 2006, ITAÚ UNIBANCO HOLDING formulated a policy on operational risk management, approved by its Audit Committee and ratified by its Board of Directors, to be followed by its local and foreign subsidiaries.
The policy comprises a set of principles, procedures and tools to enable the company to make permanent adjustments to management in view of the nature and complexity of products, services, activities, processes and systems.
The structure formalized in this policy establishes procedures for the identification, assessment, monitoring, control, mitigation and communications related to operational risks, and the roles and responsibilities of the bodies that participate in this structure.
The Central Bank of Brazil's legislation compelling financial institutions to allocate capital for operating capital for operating risk came into effect as from July 1, 2008. ITAÚ UNIBANCO HOLDING opted for the use of the Alternative Standardized Approach.
In addition to this structure, ITAÚ UNIBANCO HOLDING uses the managerial model of economic assessment by business line with the quantification of operational risks incurred through statistical models that enables the recognition of a provision for expected losses and capital allocation for unexpected losses (VaR at a confidence level of 99.9%).
The description of the structure for the operational risk management is available on the website (www.itau- unibanco.com/ir), in the route: Corporate Governance/Regulations and Policies/Operating Risk Management Policy.
IV – Liquidity Risk
It is the risk of the company not having sufficient liquidity to meet its financial obligations, as a result of the mismatching of terms or volumes between scheduled receipts and payments.
For managing cash liquidity in local and foreign currency, the company makes assumptions about future disbursements and receipts, based on statistical and economic and financial models, daily monitored by the control and liquidity management areas. As part of the daily controls, limits for minimum cash and liabilities concentration are established to anticipate actions to ensure comfortable and profitable cash levels.
V – Subscription Risk
It is the risk of variation in actuarial assumptions used in insurance, pension plan and capitalization products, which may cause changes in the reserves required for such products.
Analogous to Basel II, the International Association of Insurance Supervisors (IAIS) instructs that insurance companies should have a risk management system to supplement the system of minimum capital and solvency margin.
ITAÚ UNIBANCO HOLDING has been using models for managing its insurance operations since 2006 and anticipated the capital allocation legislation, SUSEP Resolution No. 178, which privileges institutions to adopt the internal modes of risk management. The comprehensiveness of internal models goes beyond the lines set forth by the regulatory body, and practically includes the whole universe of insurance-related products.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 146 NOTE 22 – ADDITIONAL INFORMATION
a) Insurance policy - ITAÚ UNIBANCO HOLDING and its subsidiaries, despite the low risk exposure due to a physical non-concentration of their assets, have the policy to guarantee its valuables and assets at amounts considered sufficient to cover possible claims.
b) Foreign currency – the balances in Reais linked to foreign currency were:
09/30/2009 09/30/2008 Permanent foreign investments 17,539,090 12,663,094 Net amount of other assets and liabilities indexed to foreign currency, including derivatives (31,361,010) (19,916,437) Net foreign exchange position (*) (13,821,920) (7,253,343) (*) If the participation of other stockholders in Banco Itaú Europa S.A. were not considered, the net foreign exchange position would amount to R$ (8,165,717) at 09/30/2008).
The net foreign exchange position, considering the tax effects on the net balance of other assets and liabilities indexed to foreign currency, reflects the low exposure to exchange variations.
c) Investment funds and managed portfolios – ITAÚ UNIBANCO HOLDING, through its subsidiaries, manages the following types of funds: privatization, fixed income, shares, open portfolio shares, investment clubs, customer portfolios and group portfolios, domestic and foreign, classified in memorandum accounts, distributed as follows:
Amount Amount (*) Number of funds 09/30/2009 09/30/2008 09/30/2009 09/30/2008 09/30/2009 09/30/2008 Investment funds 249,097,384 171,895,094 249,097,384 171,895,094 1,626 1,237 Fixed income 221,461,429 154,274,869 221,461,429 154,274,869 1,329 1,068 Shares 27,635,955 17,620,225 27,635,955 17,620,225 297 169 Managed portfolios 116,879,501 74,044,874 61,248,464 37,505,254 11,536 9,951 Customers 55,514,586 52,195,731 48,421,433 29,910,010 11,454 9,902 Itaú Group 61,364,915 21,849,143 12,827,031 7,595,244 82 49 TOTAL 365,976,885 245,939,968 310,345,848 209,400,348 13,162 11,188 (*) It refers to the distribution after elimination of double-counting of managed portfolios in investment funds.
d) Funds of consortia
09/30/2009 09/30/2008 Monthly estimate of installments receivable from participants 37,651 28,854 Group liabilities by installments 2,240,157 1,720,021 Participants – assets to be delivered 2,082,671 1,557,345 Funds available for participants 257,280 213,783 (In units) Number of managed groups 649 612 Number of current participants 119,787 95,272 Number of assets to be delivered to participants 69,017 47,043
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 147 e) Fundação Itaú Social - ITAÚ UNIBANCO HOLDING and its subsidiaries are the main sponsors of Fundação Itaú Social, the objectives of which are: 1) managing the “Itaú Social Program”, which aims at coordinating the organization’s role in projects of interest to the community by supporting or developing social, scientific and cultural projects, mainly in the elementary education and health areas; 2) supporting projects or initiatives in progress, supported or sponsored by entities qualified to work in the ”Itaú Social Program”; and 3) providing food and other similar benefits to the employees of ITAÚ UNIBANCO HOLDING and other companies of the group.
Donations made by the consolidated companies totaled R$ 378 (R$ 226 at 09/30/2008) in the period, and the Foundation’s social net assets totaled R$ 481,634 (R$ 620,243 at 09/30/2008). The income arising from its investments will be used to achieve the Foundation’s social purposes.
f) Instituto Itaú Cultural – IIC - ITAÚ UNIBANCO HOLDING and its subsidiaries are supporters of Instituto Itaú Cultural - IIC, an entity formed to grant incentives, promote and preserve Brazil’s cultural heritage. During the period, the consolidated companies donated the amount of R$ 30,360 (R$ 31,040 from January 1 to September 30, 2008).
g) Instituto Unibanco - ITAÚ UNIBANCO HOLDING and subsidiaries sponsor Instituto Unibanco, an institution whose objective is to support projects on social assistance, particularly education, culture, promotion of integration to labor market, and environmental protection, directly or supplementarily, through the civil society’s institutions.
h) Instituto Unibanco de Cinema - ITAÚ UNIBANCO HOLDING and its subsidiaries sponsor Instituto Unibanco de Cinema, an entity whose objective is (i) the fostering of culture in general; and (ii) providing access of low-income population to cinematography, videography and similar productions, for which it shall maintain movie theaters owned or managed by itself, and theaters to screen art films, videos, video-laser discs and other related activities, as well as to screen and divulge films of great importance, especially those produced in Brazil. During the period from January 1 to September 30, 2009, the consolidated companies donated the amount of R$ 9,632.
i) Associação Clube “A” - ITAÚ UNIBANCO HOLDING and is subsidiaries sponsor Associação Clube “A”, an entity whose objective is the provision of social services for the welfare of beneficiaries, in the way and conditions established by its Internal Rules, and according to the funds available. These services may include, among others, the promotion of cultural, educational, sports, entertainment and health care activities. During the period from January 1 to September 30, 2009, the consolidated companies donated the amount of R$ 425.
j) Instituto Assistencial Pedro di Perna - ITAÚ UNIBANCO HOLDING and its subsidiaries sponsor Instituto Assistencial Pedro di Perna, an entity whose objective is the provision of social services, stimulate sport activities, and promote recreation, aimed at the welfare of its members, in the way and conditions established by its Internal Rules, and according to the funds available.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 148 k) Minority interests in subsidiaries
Stockholders' equity Results
01/01 to 01/01 to 09/30/2009 09/30/2008 09/30/2009 09/30/2008
Unibanco Participações Societárias S.A. 1,109,300 - (49,128) - Itau Bank, Ltd. (1) 698,957 752,563 - - Banco Itaú Europa S.A. (Note 2b) - 933,511 - (90,899) Redecard S.A. (Note 2a) 527,301 - (504,284) - Itaú BBA Participações S.A. (Note 15a I) - 273,809 - (41,464) Itaú XL Seguros Corporativos S.A. 122,218 109,406 (18,281) (10,520) Miravalles Empreendimentos e Participações S.A. (2) 104,092 93,154 (2,475) (2,254) BIU Participações S.A. 83,360 - (19,888) - Três "B" Empreendimentos e Participações Ltda. (3) 75,045 68,382 (7,503) (6,015) Itaú Gestão de Ativos S.A. (4) 60,967 61,028 (1,148) (76) Biogeração de Energia S.A. 28,796 - (4,615) - Investimentos Bemge S.A. (5) 16,739 16,163 (801) (272) Kinea Investimentos S.A. 3,905 1,834 (395) 332 Other 612,180 61,577 (14,245) (3,450) Total 3,442,862 2,371,427 (622,763) (154,618) (1) Represented by redeemable preferred shares issued on December 31, 2002 by Itau Bank Ltd., in the amount of US$ 393,072 thousand, with maturity on March 31, 2015 and semiannual dividends calculated based on LIBOR plus 1.25% p.a.; (2) Parent company of Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento; (3) Indirect subsidiary of Cia. Itaú de Capitalização; (4) Indirect subsidiary of Itaú Vida e Previdência S.A.; (5) Indirect subsidiary of Banco Itaucard S.A.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 149 l) Exclusion of nonrecurring effects net of tax effects
01/01 to 01/01 to 09/30/2009 09/30/2008 Sale of investments (Note 13j) 211,652 192,447 Visa Inc. and Visa Net 211,652 95,229 Mastercard, Inc. - 54,756 BM&FBovespa - 42,462 Itaú Unibanco and CBD joint venture (Note 13i) (363,000) - Provision for contingencies – economic plans (Note 12b) (165,576) (175,906) Sale and adjustment to market value of shares of Banco Comercial Português S.A. held by BPI - (29,279) Provision in excess of allowance for loan losses - (66,000) Amortization of goodwill (Notes 2a and 13i) (506,483) (20,228) Total (823,407) (98,966)
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 150 m) Reclassifications for comparison purposes – The Company reclassified the balances as of September 30, 2008, for financial statements comparisons purposes, in view of the regrouping of the following headings: in the Balance Sheet, the reclassification of Acquisition of Right to Credit Payroll and Prepaid Expenses Related to Partnerships to Intangible Assets, of operation costs incurred from Prepaid Expenses to Subordinated Debt, the reclassification of Leasehold Improvements from Deferred Charges to Fixed Assets, and the reclassification of Customers Portfolio and Software from Deferred Charges to Intangible Assets, in order to comply with the requirements of Law No. 11,638, of December 28, 2007; the reclassification of operations with credit card issuing banks, from Other Receivables – Income Receivable to Transactions with Credit Card Issuers and Other Liabilities – Credit Card Operations; and the reclassification of Reinsurance operations from Technical Provisions of Insurance, Pension Plan and Capitalization to Other Receivables and Other Assets, in order to comply with SUSEP requirements. In Statement of Income, the reclassification of amounts related to recovery of interbank costs in Banking Service Fees and Other Administrative Expenses to Other Operating Expenses, based on recent changes to the by-laws and regulation of the Interbank Payment Chamber (CIP); and in view of the change in the criteria to distribute the effects of foreign exchange variation on foreign investments (Note 2b).
Reclassified Reclassification Prior disclosure balances CURRENT ASSETS AND LONG-TERM RECEIVABLES 392,312,028 (345,072) 391,966,956 OTHER RECEIVABLES 50,090,595 1,880,006 51,970,601 Income receivable 1,130,077 (344,275) 785,802 Transactions with credit card issuers - 1,774,225 1,774,225 Insurance premiums receivable 921,626 (921,626) - Receivables from insurance and reinsurance operations - 1,373,577 1,373,577 Other 21,986,824 (1,895) 21,984,929 OTHER ASSETS 5,048,288 (2,225,078) 2,823,210 Unearned premiums of reinsurance - 207,156 207,156 Prepaid expenses 4,772,816 (2,432,234) 2,340,582 PERMANENT ASSETS 4,287,188 2,391,937 6,679,125 FIXED ASSETS 2,059,223 377,767 2,436,990 Real estate in use 2,314,181 596,889 2,911,070 (Accumulated depreciation) (3,991,270) (219,122) (4,210,392) DEFERRED CHARGES 802,114 (802,114) - Organization and expansion expenditures 1,304,028 (1,304,028) - (Accumulated amortization) (501,914) 501,914 - INTANGIBLE ASSETS - 2,816,284 2,816,284 Acquisition of rights to credit payroll - 1,971,841 1,971,841 Other intangible assets - 1,127,236 1,127,236 (Accumulated amortization) - (282,793) (282,793) TOTAL ASSETS 396,599,216 2,046,865 398,646,081
CURRENT AND LONG-TERM LIABILITIES 362,546,552 2,046,865 364,593,417 TECHNICAL PROVISIONS FOR INSURANCE, PENSION PLAN AND CAPITALIZA 27,573,314 554,908 28,128,222 OTHER LIABILITIES 74,771,339 1,491,957 76,263,296 Credit card operations 7,805,725 1,513,253 9,318,978 Subordinated debt 12,511,551 (4,030) 12,507,521 Sundry 7,924,815 (17,266) 7,907,549 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 396,599,216 2,046,865 398,646,081
STATEMENT OF INCOME INCOME FROM FINANCIAL OPERATIONS 35,259,477 (1,604,669) 33,654,808 Loan, lease and other credit operations 23,691,256 (1,187,844) 22,503,412 Securities and derivative financial instruments 8,711,047 (391,739) 8,319,308 Compulsory deposits 1,010,741 (25,086) 985,655 EXPENSES ON FINANCIAL OPERATIONS (18,441,552) 1,534,658 (16,906,894) Money market (15,253,372) 1,144,558 (14,108,814) Borrowings and onlending (1,903,260) 390,100 (1,513,160) INCOME FROM FINANCIAL OPERATIONS BEFORE LOAN LOSSES 16,817,925 (70,011) 16,747,914 RESULT OF LOAN LOSSES (5,072,140) 12,901 (5,059,239) Expense for allowance for loan losses (5,951,920) 12,901 (5,939,019) GROSS INCOME FROM FINANCIAL OPERATIONS 11,745,785 (57,110) 11,688,675 OTHER OPERATING REVENUES (EXPENSES) (3,924,616) 53,940 (3,870,676) Banking service fees 6,103,917 (181,612) 5,922,305 Receipt 773,722 (182,124) 591,598 Other 835,332 512 835,844 Personnel expenses (4,614,338) 1,656 (4,612,682) Other administrative expenses (5,105,883) 283,442 (4,822,441) Tax expenses (1,634,359) 2,268 (1,632,091) Equity in earnings of affiliates 102,874 (40,711) 62,163 Other operating revenues 552,170 7,492 559,662 Other operating expenses (1,913,563) (18,613) (1,932,176) NON-OPERATING INCOME 315,545 (1,067) 314,478 INCOME BEFORE TAXES ON INCOME AND PROFIT SHARING 8,136,714 (4,237) 8,132,477 INCOME TAX AND SOCIAL CONTRIBUTION (1,404,380) 4,237 (1,400,143) Due on operations for the period (1,899,623) (53,326) (1,952,949) Related to temporary differences 495,243 57,563 552,806 NET INCOME 5,931,807 - 5,931,807
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 151 n) Law Nos. 11,638 and 11,941
Laws Nos. 6,404, of December 15, 1976, and 6,385, of December 7, 1976, were amended by Laws Nos. 11,638, of December 28, 2007, and 11,941, of May 27, 2009, on aspects related to accounting practices, preparation and disclosure of financial statements, effective as from January 1, 2008. The Law sets forth that the rules issued by CVM shall be prepared in conformity with international accounting standards.
The main changes arising from the Law are already included in these financial statements, including CVM regulations that do not conflict with those of BACEN’s, such as: disclosure on related parties, transaction costs, and premium on issuance of securities, statement of added value and share-based payment.
However, the standards below still await BACEN’s regulation to come into effect:
Effects on changes in foreign exchange rates and conversion of financial statements;
Adjustment to present value of long-term asset and liability operations, and of significant short-term operations;
o) Subsequent Events
I - Alliance with Porto Seguro
On August 23, 2009 ITAÚ UNIBANCO HOLDING and Porto Seguro S.A. (PORTO SEGURO) entered into an alliance aimed at the unification of their residence and automobile insurance operations, in addition to an Operational Agreement for the exclusive offer and distribution of residence and automobile insurance products to the customers of the ITAÚ UNIBANCO branch network in Brazil and Uruguay.
Such alliance will be implemented through a corporate restructuring, in which ITAÚ UNIBANCO HOLDING will transfer to PORTO SEGURO all the assets and liabilities related to its current portfolio of residence and automobile insurance equivalent to a Stockholders’ Equity of R$ 950 million. In its turn, PORTO SEGURO will issue shares representing 30% (thirty percent) of its new capital stock, which will be delivered to ITAÚ UNIBANCO HOLDING, which will then proportionally consolidate its interest in PORTO SEGURO. Therefore, no significant changes are expected in ITAÚ UNIBANCO HOLDING’s balance sheet.
For accounting purposes, the alliance will be concluded when the operation is approved at PORTO SEGURO's stockholders’ meeting and the by the Brazilian Antitrust System (SBDC), which is scheduled to take place in the fourth quarter of 2009. On October 16, 2009, SUSEP granted prior authorization for the corporate acts related to this alliance.
II - Transfer of Unibanco Saúde Seguradora’s capital to Tempo Participações
On September 24, ITAÚ UNIBANCO HOLDING and Tempo Participações S.A. (TEMPO) signed a Memorandum of Understanding aimed at transferring 100% of Unibanco Saúde Seguradora’s capital to TEMPO. Accordingly, TEMPO will pay the amount of R$ 55 million on the stock transfer date. In view of the performance of Unibanco Saúde’s operations in the subsequent 12 months, ITAÚ UNIBANCO HOLDING will be entitled to an additional payment of up to R$ 45 million. This transaction is not expected to give rise to significant effects on the company’s balance sheet and results.
In the coming 90 days, TEMPO and ITAÚ UNIBANCO HOLDING will execute a definitive documentation detailing the rules outlined in the Memorandum of Understanding and will subject this agreement to the approval of the bodies in charge, including the ANS (Brazilian Health Agency – the health market regulator) and SBDC.
The effects of this operation will be recorded in the financial statements after the above-mentioned approval.
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 152 Report of Independent Accountants on Limited Reviews
To the Board of Directors and Stockholders Itaú Unibanco Holding S.A. (formerly Itaú Unibanco Banco Múltiplo S.A.)
1 We have carried out limited reviews of the balance sheets of Itaú Unibanco Holding S.A. (Bank) and Itaú Unibanco Holding S.A. and its subsidiary companies (consolidated) as of September 30, 2009 and 2008, and the related statements of income, of changes in stockholders´ equity, of cash flows and of added value, as well as the consolidated statements of income, of cash flows and of added value for the nine- month periods then ended. These financial statements are the responsibility of the Bank´s management. Our responsibility is to issue a report on these financial statements.
2 Our reviews were conducted in accordance with specific standards established by the Institute of Independent Auditors of Brazil (IBRACON), in conjunction with the Federal Accounting Council (CFC), and mainly comprised: (a) inquiries of and discussions with management responsible for the accounting, financial and operating areas of the Bank and its subsidiaries with regard to the main criteria adopted for the preparation of the financial statements and (b) a review of the significant information and of the subsequent events which have, or could have, significant effects on the financial position and operations of the Bank and its subsidiaries.
3 Based on our limited reviews, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be stated in accordance with accounting practices adopted in Brazil.
São Paulo, October 30, 2009
PricewaterhouseCoopers Paulo Sergio Miron Auditores Independentes Contador CRC 1SP173647/O-5 CRC 2SP000160/O-5
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 153
ITAÚ UNIBANCO HOLDING S.A. CNPJ. 60.872.504/0001-23 Public company NIRE. 35300010230
OPINION OF THE FISCAL COUNCIL
The effective members of the Fiscal Council of ITAÚ UNIBANCO HOLDING S.A., having reviewed the financial statements for the period from January to September 2009, have verified the accuracy of all items examined and, in view of the unqualified opinion of PricewaterhouseCoopers Auditores Independentes, understand that they adequately reflect the company’s capital structure, financial position and the activities conducted during the period.
São Paulo, October 30, 2009.
IRAN SIQUEIRA LIMA President
ALBERTO SOZIN FURUGUEM Member
ARTEMIO BERTHOLINI Member
Itaú Unibanco+ROGLQJ S.A. – &RPSOHWH)LQDQFLDO6WDWHPHQWV - September0 154